Need a 100 year inflation outlook? The market has spoken, and courtesy of the liquidity glut, it appears the outlook a century down the line, is for a 5.95% inflation give or take (yes, yes, we know this is not scientific: we are hoping the soon to be released 100 Year swap spreads will give a better read). One wonders what happens to this yield if the Fed's trillions in free money sloshing around the markets are eliminated.
Full pricing grid, courtesy of sole manager (and recent deflationist) Goldman Sachs:
Norfolk Southern Corp "NSC" Baa1/BBB+/BBB+ (s/s/s) upsized USD250m (up from $100m) 100y reopening of 6.00% March 2105 sr fixed rate notes launched at 5.95%. GS (sole books). Co-mgrs: Barclays. UOP: GCP. Pricing today. Original USD300m issue priced March 7 2005 (6.00% at 100).
More from Dow Jones:
Norfolk Southern Corp .'s (NSC) reopening of its 100-year bond, first issued in March 2005, has launched at 5.95%, inside price talk of 6%, according to a person familiar with the sale. The sale has also been upsized to $250 million from original guidance of around $100 million.
The Norfolk, Va.-based railroad's new senior fixed-rate bonds, which come on top of the existing $300 million sold in 2005 and also maturing in 2105, are expected to be rated Baa1 by Moody's Investors Service and BBB+ by both Standard & Poor's and Fitch Ratings.
Bankers have estimated the issuer will need to pay a premium of roughly 0.75 percentage points more than what it would cost them to sell 30-year debt. The original deal from 2005 sold at par with an interest rate of 6%, and with a spread over Treasurys of 1.37 percentage points. Another 100-year bond the company sold in 1997 for $350 million, which was part of a $4.3 billion deal, had a spread of 0.97 percentage point over Treasurys.
Goldman Sachs is lead bookrunner on Monday's sale, proceeds from which will be used for general corporate purposes, according to the person familiar with the sale.
A spokesman for the issuer said its "decision to reopen the 100-year bonds was based on the current low [interest] rates, coupled with the strong appetite among buyers for them."
Bankers have been pitching century bonds selectively in recent weeks because Treasury rates are so low that issuers can lock in 100-year financing at reasonably attractive rates. At the same time, investors are sitting on piles of cash and looking to put it to work in corporate bonds, where where they are seeking longer-dated assets that give them higher yields.
Investors say that 100-year bonds aren't much more sensitive to interest rate moves than are 30-year bonds.
Century bonds were very popular earlier this decade and in the mid-1990s, but they aren't very liquid in secondary trading, meaning that they only make sense for certain types of investors. Life insurers and pension funds are the likely buyers and market chatter last week suggested there was around $100 million of capacity among these buyers for a 100-year bond. Investors prefer bond issues to be at least $250 million in size so they are eligible for inclusion in the Barclays Capital Aggregate Bond Index, like the Norfolk Southern 2105 bonds are.
Driving more pension fund interest will be the Pension Protection Act of 2006, which Michael Collins, senior investment officer for Prudential Fixed Income, said over time will encourage pension fund managers to minimize risk between their assets and liabilities even more than they do now.
Issuers have been shifting toward the long end of the maturity spectrum, with around 30% more 30-year debt being issued this year than in 2009 and 50% less three-year debt issued this year than last, according to data provider Dealogic.
Only the strongest companies are able to issue century bonds--brands like Coca Cola Enterprises Inc . (CCE) that are expected to be around in 100 years time. While they may have to pay more than they do when selling 30-year debt, some of them are able to stomach that extra cost, especially if they are able to use the proceeds to buy back more expensive debt that they sold when rates were higher.