Business World

Tuesday 16 July 2019

Austria to exploit low rates with new 100-year bond

ECB: Bond yields fell after Mario Draghi opened door to quantitative easing. Photo: AFP/Getty Images
ECB: Bond yields fell after Mario Draghi opened door to quantitative easing. Photo: AFP/Getty Images
Donal O'Donovan

Donal O'Donovan

Austria may issue a rare 100-year bond, alongside a planned new five-year debt deal this week, as it moves to lock in the advantages of extraordinarily low eurozone borrowing rates.

Ireland is among the handful of countries to have previously issued a 100-year bond. In 2016 the National Treasury Management Agency (NTMA) issued a €100m, 100-year bond - which falls due in April 2116.

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That Irish debt was created in response to a specific request from a lender who wanted to balance its own portfolio and Ireland has not repeated the exercise since.

Belgium too has issued a 100-year bond, again as a niche investment product.

Austria will be the euro area's first repeat issuer of such bonds, it has named lead managers to arrange a €3bn five-year euro-denominated benchmark bond, and may add on a 100-year note subject to investor feedback, according to a lead manager.

Austria was the first eurozone sovereign to sell a so-called "century bond" publicly via syndication - where a borrower appoints banks to sell debt directly to investors - when it placed a €3.5bn 100-year note in September 2017.

Austria's outstanding 100-year bond was yielding 1.44pc on Tuesday, having rallied almost 100 basis points since its issue date. The return for investors on Ireland's outstanding 100-year bond was even lower, yielding 1.159pc. When the Irish debt was issued in 2016 the interest stood at 2.35pc.

The Austrian five-year deal could mark a rare negative-yielding syndication. Austrian five-year bonds now trade at -0.44pc having turned negative for the first time in October 2018 .

Austria has ridden the strong rally which has swept through the eurozone government bond market and seen many bonds yields fall to record lows on the expectation of more monetary easing from the European Central Bank.

Austrian 10-year government bond yields fell below zero on June 18 after ECB President Mario Draghi opened the door to a new round of quantitative easing at a gathering of policy makers in Sintra, Portugal.

More than half of all eurozone government bonds traded on the Tradeweb platform have negative yields, data showed last week.

Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, Nomura and UniCredit are arranging the latest Austrian deal.

The transaction is expected to be launched in the near future, the lead manager said.

Additional reporting Reuters

Irish Independent

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