UltraLong Bond Madness – Issuance Of 30 Year+ Maturity Debt Soars 22% In 2014

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation.

Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!


We learn from the Wall Street Journal that:

Global sales of sovereign and corporate bonds that mature after 30 years have reached $142.5 billion this year as of Tuesday, a 22% rise from the same period last year and a 55% jump from the same period in 2012, according to data provider Dealogic. Their growth far outpaces sales of government and corporate bonds due in 30 years or less. Those bond offerings totaled $5.236 trillion so far this year, a 4.6% increase from the same period in 2012.


France, Austria, Switzerland, Japan and the U.K. have sold ultralong bonds this year denominated in local currencies. In the developing world, Mexico sold a 100-year bond in March denominated in British pounds. Canada sold its first 50-year bond in April and sold more in July.


In the corporate world, McDonald’s Corp. sold a 40-year £300 million ($506 million) bond in June denominated in British pounds.


Caterpillar Inc. in May sold $500 million of 50-year bonds yielding 4.767%, only 1.375 percentage points more than 30-year U.S. Treasurys at the time.


But the robust demand for long bonds highlights a number of powerful factors often ignored by analysts and traders. These include the longer-term perspective of buyers such as pensions and insurers, who struggle to match future obligations with long-lived, income-generating assets, and the shrinking pool of long-term debt available to investors amid hefty Fed purchases.


“You pick up extra yields from ultralong bonds,” said Erik Schiller, senior portfolio manager on global government bonds at Prudential Financial Inc.’s fixed-income unit, which oversees more than $400 billion. “People care about income right now.”


Institutional buyers have been flocking to the debt. The California Public Employees’ Retirement System, the largest public pension fund in the U.S., this year approved investment goals that stand to boost bondholdings at the expense of stocks. A Calpers representative declined to elaborate.

Ah, Calpers. The largest pubic pension in the nation, which seems to have no clue what it’s doing. But I’ll get to that later…

There are more ultralong bonds in the pipeline. Japan is scheduled to sell a 40-year bond late this month, according to the information on the Ministry of Finance’s website.


Spain’s government has indicated in recent months that it is considering selling a 50-year bond before the end of the year. The U.S. has asked large banks whether it should consider selling ultralong bonds.

 As promised earlier, Calpers once again recently demonstrated an incredible degree of incompetence. Pension360 reported that:

You probably trust your doctor with your life. But with your money? Many people might balk at the notion of their doctor making their investment decisions for them.


But back in 2007, CalPERS made a big bet: a $705 million investment in a private equity fund, Health Evolution Partners Inc., specializing in health care companies.


The CEO of the fund, David Brailer, is a nationally renowned physician who had previously been the “health czar” under George W. Bush. But this was his first foray into the investment space, and he had no experience running an investment fund or making private equity investments.


Still, he reportedly promised the CalPERS board healthy returns in excess of 20 percent.


But through seven years, the fund has never managed to exceed single-digit returns. And portions of CalPERS’ investment have actually experienced negative returns.


CalPERS paid the fund over $18 million in fees in the fiscal year 2011-12, according to the System’s financial report.

Naked Capitalism added this perspective to the whole thing:

The reason for belaboring this particular bad deal is that CalPERS is widely seen as savviest public pension fund investing in private equity. Yet there’s no justification for this self-inflicted wound. A much smaller investment could have been justified as an interesting experiment. Brailer’s past prominent role leads one to suspect that there’s more to this story than the press has ferreted out. And if CalPERS can get itself in a costly mess like this, imagine what lurks at other public pension funds.

Although this investment occurred in 2007, we know for a fact that public pensions have been rapidly increasing their investments in “alternative asset managers” using secret deals, including a wide swath of private equity firms. As I noted on Twitter earlier today:

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LawsofPhysics's picture

Yep, now regarding the collateral behind all that debt...

NotApplicable's picture

How else are they gonna flatten out the entire yield curve? Thanks to ZIRP/NIRP math, all debt-servicing problems disappear in fifty years.

I eagerly await the IMF selling Century Bonds, in an effort to "save the world."

WhyDoesItHurtWhen iPee's picture

So, on top of all the existing debt everyone has that we know we will never pay-off, this new long term debt must the stuff that we shure-as-hell will never pay-off.


WhyDoesItHurtWhen iPee's picture

“People care about income right now.”

No fucking shit !

666's picture

Since the lifespan of many current governments can now be rated in minutes, does it make any sense to invest in their bonds having maturities rated in years?

MalteseFalcon's picture

100 year bonds have been issued

Bonds need collateral

There was collateral damage in Iraq

Syria is next to Iraq.

Russia has a naval base in Syria

Puitn is the dictator of Russia


#Aristotle approves this message #you can't spell "hatin'" without "Putin"

game theory's picture

Inflation eventually fixes all debt problems: it's a wonder to me that we haven't had QE4 announced yet.

NoDebt's picture

It was.  September, 2012.  "Twist" was QE3.

I'm just wondering how long it will take for us to be in double-digit QE.

game theory's picture

When the taper ends and the economy goes into the toilet in 2015, we'll get more QE. Another $2T maybe?

LawsofPhysics's picture

Who needs QE when money is "free" (ZIRP).  print all you want, it doesn't cost anything...




LawsofPhysics's picture

yes, that was my point doc.  Once fraud is the status quo, possession is all that matters.

SAT 800's picture

I have to admit, I just started laughing when I was still reading the header for this article, and I still haven't stopped. People really, really, are stupid. As P.T. Barnum observed, there's one born every minute. Boy, I just can't wait to get my supply of fifty year bonds ! It'll be great. LOL. And these are literate grown-ups; supposedly. How fucking crazy do you have to be to buy a fifty year bond issued in a paper currency that's worth whatever the issuer wants it to be worth? Wouldn't it be great to have a $100,000 Bond that would buy a used pick-up truck? Wow; what an opportunity.

game theory's picture

You may be laughing...but stupid people scare me...especially when they have so much money: shit gets really weird when that happens (just like right now).

joego1's picture

I like the Hunter Thompson quote that was on here the other day;

When the going gets weird, the weird turn pro.

BandGap's picture

All it takes in one or two in the "herd" to rationalize this. Then the others follow.

See: CNBC Business News


junction's picture

I would like to be able to issue 100 years bonds, payable in full by me in 2114. 

nink's picture

What interest rate are you offering. I need at least 20% before I would commit to buying your personally guaranteed 100 year bond.

SAT 800's picture

Caterpillar sold $500 Million in fifty year bonds. !!! Oh, stop; I can't stop laughing. Wake up; you dumb fucks, Caterpillar won't even exist in twenty years. All this is called "the folly of chasing interest rates". It's one of the fundamental Kindergarten-level wrong headed ideas that lead to financial ruin; over and over and over again. Desperation leads the money managers to pretend that this interest will actually be paid. Ah, Calpers; one of my favorite subjects. Calpers is utterly doomed. Everyone was going to be rich when they retired; remember that one? That's right up there with the electricity to cheap to meter. You don't remember that one? We got a little news letter with our PGE bill in around 1959 at my paretns house, telling us about the electricity that would be too cheap to meter. Look; just buy Silver; as much as you can. This is your competition; you're going to look like three geniuses.

TeamDepends's picture

Yellen are you listening?  Uncle Sam wants YOU to help your country by patriotically purchasing our new, safe 500 year bond.

motorollin's picture

She better leave some for my MyRA.

Dr. Engali's picture

Yeah right, as if we are going to be around long enough to collect that princple. This should tell people that we are in a Japan like situation, and nobody is expexting rates to rise anytime soon.

Ranting Troglodyte's picture

Makes sense to me.  Kick the can....further.

IANAE's picture

issuing XLT debt at low rates = good biz

purchasing XLT debt at low rates = not so good for returns, in particular given XLT liquidity (what's that?) issues and Fed rate 'lift off' in the much nearer term.

youngman's picture

I wonder do you pay taxes only in year 50 or 100.....Colombia is thinking about a 100 year bond too....wierd...not a good idea for an investor I think....

IANAE's picture

...meaning when do you get to realize the inevitable cap losses?

SAT 800's picture

NO. definitely not a good idea. LOL. The institutions that can actually sell some of these things must be coming in their pants, on the other hand. Wow; what a deal.

NoWayJose's picture

At these historic and manipulated low rates, every country should be issuing as much long term debt as they can. When rates go back up to attract investors and savers, countries will not be able to afford higher rates if they have not already locked in long term low rates.

Of course, you would be an idiot to buy these

Catullus's picture

Has Mexico even existed for 100 years?

redux2redux's picture

...or has their been a hundred year span (for those issuing the bonds) where they haven't defaulted?

BandGap's picture

Who on God's earth is buying these with a straight face? No wonder these are "hidden" deals.

There is nothing backing these now, WTF changes in 50-100 years? Crystal ball anyone? Please?

buzzsaw99's picture

Institutional buyers have been flocking to the debt. The California Public Employees’ Retirement System, the largest public pension fund in the U.S., this year approved investment goals that stand to boost bondholdings at the expense of stocks. A Calpers representative declined to elaborate.

Ah, Calpers. The largest pubic pension in the nation, which seems to have no clue what it’s doing. But I’ll get to that later…

WRONG! That's the first thing they've done in a decade that made any sense at all.

IANAE's picture

reasoning? not challenging, just interested in your rationale.

moonstears's picture

Because Uncle Sam would go broke quick @7%...If doolars were real in that world, like yours. 2% T bill looks prudent.

p.s. You'll get 7% yield on  the 10yr...when bread is sold by the slice and cola by the shot, at your local market. 


buzzsaw99's picture

imo bonds have room to run, stocks do not.

ebworthen's picture

Better than buying Chipotle or Tesla, that's for sure.

Too bad they can't get 7% on a 10 year Treasury note.

SAT 800's picture

Bonds; "Instruments of guaranteed confistication". You may need to meditate on this for a few minutes.

RiskyBidness's picture

Who cares.  BTFD!!

ebworthen's picture

I might be able to afford a house again some day - if they give me 100 year loan terms.

vyeung's picture

who the farks going to buy them? All the BRICS will tell them to fark off and the FED/ECB will be the only buyers through its fake demand.

Comte d'herblay's picture

Time, one minute, one eon. What is it really?


In the immortal words of John Fowles:   "Time is a room, not a road".  (The French Lieutenant's Woman).

Peter Pan's picture

100 year bonds?

Why the fuck should I prefer those to 5000 year old gold?

Dre4dwolf's picture

Can I get like a 2000 year mortgage on my house? you know so we can reduce the monthly payments to like 50$ a month? My progeny in like 900 years should be able to pay it off with inflation adjustments alone . . . 

Dewey Cheatum Howe's picture

Lower yield safer bonds like municipal bonds are going to be a big winner if this goes into a deflationary spiral.

That 1% for example is going to be worth double/triple relative to purchasing power if the currency tanks.

It maybe 1% now but if the currency deflates by 50% or the dollar collapses and they reissue a new currency valued to balance the debt on hand for the government which would be something 60% deflation or so that 1% is not longer 1% in relation to purchasing power. Those yields will be inflationary. Junk bonds well good yields now but junk doesn't always pay up when it claims it will.

SAT 800's picture

There are no deflationary spirals that feature an appreciation of the value of the worthless fiat currency. None. Completely out of the question. merely another delusion fostered by desperation.

SAT 800's picture

Wow. The meet-up with Reality is going to be a Bitch.

joego1's picture

Be a patriot and buy "Buzz Lightyear" - "To infinity and beyond bonds"

eddiebe's picture

What will the $ be worth in 50 years?

Grouchy Marx's picture

Consider that QE is essentially a bond with maturation of infinity.

So, 100 years, what's that?