Austria Sells Second Ever Century Bond After Getting Record Bids
Austria Sells Second Ever Century Bond After Getting Record Bids
(Bloomberg) -- Getting a yield of less than 1% to lock your money up for 100 years might not sound like a great deal, yet the rush for safety means Austria’s century bonds have nearly doubled in value so far.
That’s why the nation’s sale of new debt that matures in 2120 garnered record orders of more than 17.7 billion euros ($19.9 billion), with a coupon of 0.85%. It follows the success of its first century bond three years ago, which has rallied to return investors about 85% since then.
The existing debt now yields only 0.83%, less than the rate on offer for lending to Italy’s government for just seven years. Still, positive yields are becoming harder to find in the region’s highest-rated government bonds, with almost the entirety of Germany’s yield curve below 0%.
Read more: Austrian Century Bond Almost Doubling Money Heralds New Issue
Such an investment could be a bet that inflation is likely to remain depressed, since the longest-dated issues are the most vulnerable to rising prices. For Austria, it offers the chance to raise 2 billion euros at historically-low borrowing costs, with the high demand allowing it to trim pricing on the sale from initial guidance of 0.95%.
“This is the prudent course of action from the Treasury,” said Peter Chatwell, head of multi-asset strategy at Mizuho International Plc. “And it’s probably a good opportunity for investors to buy some cheap convexity in euro rates,” he said, referring to the dynamic between interest rates and bond prices.
Austria’s benchmark 30-year bonds have pared some losses that followed Tuesday’s announcement of the sale, while generally bond demand has stayed robust despite enormous borrowing from Europe’s governments to finance coronavirus spending.
That’s largely due to the European Central Bank’s pandemic purchase program, which is set to snap up around 1.35 trillion euros of debt this year, covering much of the extra issuance.
Austria mandated Barclays Plc, Bank of America Merrill Lynch, Deutsche Bank AG, JPMorgan Chase & Co., NatWest Markets and UniCredit SpA to lead manage the sale. Such syndications via banks have become an increasingly popular way to sell bonds this year, to raise larger amounts and to diversify the investors.
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