Austria Makes History With First 100-Year Bond Sale Into Public Euro Markets

Austria, a country which itself is less than 100 years old, made European history today when it launched a 100-year government bond: the first such deal to be sold into eurozone public markets. While Austria is not the first nation to sell 100 year bonds - last year Ireland and Belgium both sold privately-placed century-long bonds - while Austria itself sold a 70 year bond, Austria’s planned 100-year bond is unique in that it would be the first such debt sold directly into public markets in the eurozone according to the WSJ.

It is unclear if the lack of a private sale suggests there was no reverse inquiry for the high duration product among institutions, however the return of this highly convex and duration-laden instrument suggests that European yields are unlikely to shoot higher, at least judging by the anticipated demand. On the other hand, yields are about to spike from the perspective of Austria, which is simply seeking to lock in the longest-possible term financing before the ECB begins tapering/tightening, and yields spike, as Fasanara Capital warned yesterday.

Thanks to the ECB's relentless yield suppression and monetizing of virtually every rates product, Eurozone countries and companies have been able to raise cash for longer time periods because Mario Draghi's stimulus measures have pushed down bond yields and lowered borrowing costs across the euro area. Late last year, Austria sold a €2 billion ($2.2 billion), 70-year bond at a yield of 1.53%, while Ireland and Belgium have both sold privately placed bonds that don’t come due for a century.

Some more details on today's offering, via the WSJ:

  • The initial price expected for the planned September 2117-dated bond is in the 60 basis points area above the yield of the domestic peer 1.50% February 2047 bond. The 2047-dated Austrian bond is trading at a yield of 1.52%, according to Tradeweb.
  • The joint lead managers of the dual transaction are BofA Merrill Lynch, Erste Group , Goldman Sachs International Bank, Natwest Markets and Société Générale CIB.

As observed above, Ireland and Belgium each sold €100 million in 100-year bonds in 2016 in private placements. Outside the eurozone, Argentina and Mexico have issued 100-year bonds. In 2015, French state-owned railroad company SNCF issued a 100-year euro bond for €25 million, while power utility Electricité de France SA sold 100-year bonds in 2014.

As Antoine Bouvet of Mizuho observes, "the potential for a 100-year deal is a sign that the market for very long issuance is not closed yet."  Ironically, with no comparably long publicly issued sovereign bond available in the eurozone, Austria’s own, 2086-dated bond might be the pricing reference, Mr. Bouvet said. The 2086-dated bond is trading at a yield of 1.82%, according to Tradeweb.

So is this the last hurrah before the ECB finally unveils its tapering intentions next month as many have speculated, leading to the next European "tantrum", blowing out yields out of the water and resulting in immediate, and substantial, losses to all those who bought the Austrian bond?

Perhaps, on the other hand, judging by the record daily inflow ($777MM) into Blockrock's 20Y Treasury Bond ETF (TLT), virtually nobody is worried about this contingency.


Manthong BaBaBouy Tue, 09/12/2017 - 10:10 Permalink

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Hey… I will buy 100 year bonds… …..and redeem them when I’m over 150 years old.

In reply to by BaBaBouy

fx Paul Kersey Tue, 09/12/2017 - 11:55 Permalink

Austria is far older than just 100 years. The kingdom Austria-Hungary was once a real a world power.That said, I am sure we will see a wave of 100 year govt bonds to hit the European shores - and I am sure the ECB will ultimately own a large chunk of them. Austria is already fighting back. Contrary to the dumb Germans, the Austrians are going to elect a new govt within a few weeks that is vehemently opposed to any further rapefugee influx. While the idiots in germany will re-elect the most dangerous and clueless German prime minister that has ever served in office, i.e. Mrs Merkel.

In reply to by Paul Kersey

rex-lacrymarum 2banana Tue, 09/12/2017 - 12:32 Permalink

The last outstanding bond issues were wiped out by the post WW1 hyperinflation, so that is a moot question. However, every single gold and silver coin ever issued by the Austrian Empire, from Ducats to Florins to Crowns has retained its value (in fact, since they trade at a collector's premium, these coins have done more than keep their value).  

In reply to by 2banana

johnjkiii Tue, 09/12/2017 - 10:13 Permalink

Makes practical sense for Austria (and maybe the USA) but any investor with brains will realize that they're not getting paid for the long term risk. Fools' errand.

LotUnsold Tue, 09/12/2017 - 10:55 Permalink

This is a great idea, from almost every possible perspective - and especially for the issuing country and its citizens.  Anyone complaining has misunderstood what you are buying in a bond.  You are buying a series of cashflows.  You are not lending $100 and hoping to get it back, getting interest in the meantime.  On a 100 year bond the principal - the $100 - hardly matters.  In this instance, on the projected yield of 2.1% (which I think is far too generous) the principal is worth 12.5% of what you lay down.  You are getting 40% more yield than you would have on their 30 year treasury so that is going to pay for itself pretty quickly.  I can't tell you which way bond yields are going to go in Europe but this bond will be a very useful component to have out in the market.  It is by nature very volatile, which could have value by itself, but it will be ideal for managing the duration of a bond portfolio and will be seriously sought after in a climate of falling interest rates.  The only thing I can't understand is why it is being sold at such a discount.  i suspect that can be put down to people not understanding what it is and how it works.

TripleX Tue, 09/12/2017 - 11:35 Permalink

Austria is more than 1000 years old, just because they lost a war and had to surrender most of their empire doesn't mean they have no long history

Head_Shots_Work Tue, 09/12/2017 - 11:41 Permalink

So - 100 years from now - when Austria is 100% muslim - how will they feel about these bonds? Maybe I can issue 100 year bonds! Yeah sure - contact me in 100 years about my repayment! ha hah ha. 

rex-lacrymarum Tue, 09/12/2017 - 12:27 Permalink

Austria is actually more than 1,000 years old, if you date it by the first documented mention of its name in 996 AD as the Margraviate of Ostarrichi, part of the Duchy of Bavaria founded in 976 AD. It became an independent duchy of the Holy Roman Empire in 1156 AD , so if we take this as the starting date, it is around 860 years old, so you are only off by factor of 8.6.  In 1804, after 7 centuries of Hapsburg rule, it declared itself an empire in its own right. It is only the contemporary Republic that is less than a century old, but similar to other configurations, this is only a temporary phase. The Empire will return. In preparation for this inevitability, the capital of Austria remains a very large city, fit to rule an empire. As an aside: the oldest traces of human habitation in Austria actually date back around 250,000 years as it were (paleolithic stone tools and pottery fragments). The density of cultural artifacts left behind by inhabitants of today's Austria began to increase noticeably around 32,000 years ago. They didn't issue any bonds though.  

oncemore rex-lacrymarum Tue, 09/12/2017 - 14:24 Permalink

Dear dreamer, austrian capital consists of 60% moslems, rdfugees from afrika and asia, shitholes, like afghanistan and pakistan.Close your dreams about empire. Those ship garbage biomasses cannot read and write in arabic, tel l me, how wil they read and write in lathin, they destroyed the country., austria is domed.70% of al newborn babies are moslems, austrai will not exist in 20 years, it will be isis territory. All moslems here suport isis.

In reply to by rex-lacrymarum

rex-lacrymarum oncemore Tue, 09/12/2017 - 18:06 Permalink

You thoroughly underestimate Austria and its long-held-under-wraps imperial ambitions. Its foreign minister is the famous Moslem-slayer Sebastian Kurz! Back when Merkel's open door policy threatened to overwhelm the Austrian core territory, the Secret Empire briefly flickered back into existence for those who cared to look. A conference was called in Vienna. Greece was not invited, since it was never part of the Empire - and it was the intended victim of what was to come. Representatives of all the former member states of the Empire north of Greece showed up though - on time, and clad in their best fineries. One day later, the so-called "Balkan route" was closed - and it remains closed to this day.  Ye of little faith, this is not the first time invading hordes of infidels were stopped dead in their tracks at the gates of Vienna.You are scared of people who by your own account are not even able to write because of their birth rate? Let me correct your pulled-from-thin-air statistics before you die of fear: 7% of Austria's population are Muslims, 12.5% of Vienna's population are (as of year-end 2016). 13.5% of newborn babies are Muslims, which certainly shows that they are breeding quite fast. You do understand though that "70" and "13.5" are slightly different numbers?  

In reply to by oncemore

oncemore Tue, 09/12/2017 - 14:27 Permalink

Who is going to pay it?The moslems from afrika, guests of Mr. Merkel, who happen to like austrian social benefits?Or turks, living there?Which idiot did buy it?Sharia does  reje t all interests who will pay it out? Moslems, who will run the country in 20 years?

kwaremont Tue, 09/12/2017 - 15:36 Permalink

why not 500, 1000 year ones? Could be named "Empire bonds". And why not going further: 10 000, 100 000, 1 million - from Jericho bonds through Neanderthal and Cromagnon bonds up (down?) to Habilis/Erectus and Australopitecus bonds and that's not all - for Wall street casino pseudocapitalism there should be also ANIMAL BONDS - from Primate bonds, via Mammalian bonds we come to special 100 mil yrs DinoBonds (Goldmans already reserved If this is not enough then there is a possibility of GeoBonds and Universe Bonds... if 4.7 billion year EarthBond is no enough, Rothschildians are preparing the ultimate BigBangBond conservatively set to 10 billion years until physicists agree on precise value (and thinking about MultiverseBonds with wormholes sucking their value) Last but not least - for believers we can even have infinite GodBonds.