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.