Daily Management Review

Austria to issue 100-year bonds once again


Austria has hired banks to issue five-year bonds for €3 billion and can also issue 100-year bonds, writes Financial Times referring to a banker familiar with the situation. According to him, size of the hundred-year emission can reach €1 billion. The event will take place if investors are interested. If this happens, for Austria this will be the second issue of century bonds in two years. Such long-term bonds attract investors with relatively high returns, as many other government bonds have extremely low or negative returns.

In recent years, various countries have been increasingly issuing 100-year bonds against the background of low interest rates in developed countries. Ireland and Belgium attracted € 100 million using such papers in 2016, but they did so through non-public offering. Argentina issued $ 2.75 billion in emissions in June 2017, although at that time the country was nearly newcomer on the international capital market after a long-term dispute with creditors due to default in 2001. Finally, in September 2017, Austria carried out the largest issue of secular bonds worth €3.5 billion with a yield of 2.112%. Investor demand for these bonds reached €11.4 billion.

Since then, the 100-year bonds of Austria have risen in price, and their yield dropped to about 1.12%. This underlines investor demand for assets with relatively high returns, writes FT. The aggregate value of bonds with negative returns reached a record $ 12.5 trillion, according to Bloomberg. This happened after ECB President Mario Draghi in mid-June hinted at a further easing of monetary policy in the eurozone by resuming the bond buying program or reducing the already negative interest rates. At the last meeting, the US Federal Reserve System (FRS) also hinted that it could reduce the base interest rate this year in order to support the American economy.

In 2016, Vienna also issued 70-year bonds worth €2 billion. But this time, the Austrian authorities almost did not discuss the issue of long-term bonds with a maturity of less than 100 years, because investors who want to invest in such securities are always more attracted to century bonds due to higher yields, the source said to FT.

The demand for new 100-year-old Austrian bonds will most likely be great against the background of the current monetary policy in developed countries and such geopolitical risks as the US-China trade war, says Credit Agricole strategist Orlando Green. "The continuing political uncertainty makes high-quality bonds attractive," Bloomberg quoted him as saying.

Fitch estimates Austria’s sovereign rating at AA + and Moody’s gives the country AA1. The issue of its bonds is organized by the banks of Bank of America Merrill Lynch, Goldman Sachs, JPMorgan, Nomura and UniCredit.

source: ft.com