Investment Strategy

The Dawn of the Ultra-Long Bond

  • Why it matters

    Why it matters

    Investors such as pension funds and insurers are buying bonds with longer maturities in an effort to compensate for low interest rates.

  • Facts


    • Austria last week became the first European country to issue a 70-year bond, breaking the previous record of 50 years.
    • Germany is not expected to follow suit and has stated its long-term needs are met by 30-year bonds.
    • This surge in popularity has been attributed to lower yields on bonds with shorter terms, which have been blamed on central banks’ policies.
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Panoramic view of Vienna at dusk
Austria recently became the first euro zone economy to issue a publicly placed bond with a term longer than 50 years. Source: Getty Images

Austrian Treasury head Markus Stix must have been feeling rather tense last week, after daring to conduct a major experiment. For the first time, Austria’s debt management office sold a large federal bond that will not mature for 70 years.

Stress proved to be entirely unwarranted though, as the €2 billion ($2.22 billion) bond was heavily oversubscribed, with buy orders totaling €7.8 billion. This was despite the fact that the annual yield was only 1.5 percent.

“Ultra long-term bonds are on trend, and Austria has crowned it,” said Michael Leister, an interest rate strategist at German bank Commerzbank. This year the proportion of bonds with a maturity of 20 years or more has risen sharply, with 50-year bonds being issued in Belgium, France, Spain and Italy. However, no other euro zone country had issued a publicly-placed bond with a term longer than that until now. The only bonds with even longer maturities had been small 100-year bonds from Belgium and Ireland, placed with just a few private investors.

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