Aus­tria tests new wa­ters by mar­ket­ing 100-year bond

Daily Mirror (Sri Lanka) - - FOREIGN - REUTERS

Aus­tria launched the sale of a 100-year bond yes­ter­day af­ter over­whelm­ing in­vestor in­ter­est gave its debt of­fi­cials con­fi­dence it could be­come the first euro zone coun­try to sell a “cen­tury” bond pub­licly through a group of banks.

A suc­cess­ful sale would demon­strate that de­mand for su­per-long bonds, whose prices are ex­tremely sen­si­tive to in­ter­est rate changes, re­mains solid even as cen­tral banks start wind­ing down their cri­sis-era stim­u­lus mea­sures.

In the ini­tial stages, Aus­tria is mar­ket­ing the bonds at a 55-60 ba­sis points pre­mium over its out­stand­ing bonds ma­tur­ing in Fe­bru­ary 2047, ac­cord­ing to bankers on the deal.

Those 30-year bonds were yield­ing 1.52 per­cent yes­ter­day morn­ing, ac­cord­ing to Tradeweb, sug­gest­ing a yield of be­tween 2.07 and 2.12 per­cent on the cen­tury bonds.

“It’s an in­ter­est­ing deal as there hasn’t been a syn­di­cated bond from a eu­ro­zone sov­er­eign in this part of the curve be­fore,” said one of the bankers work­ing on the deal. “We’ll be long dead by the time this ma­tures.”

The du­ra­tion of the bond - a mea­sure of how long it takes in­vestors to re­coup their in­vest­ment - is set to be around 44 years. This would make it the bond with the high­est du­ra­tion in the euro zone govern­ment debt mar­ket.

Aus­tria is plan­ning to sell the bonds via syn­di­ca­tion to help ac­cess a wider base of in­vestors. The banks in­volved are Bank of Amer­ica Mer­rill Lynch, Erste Group, Gold­man Sachs, Natwest Mar­kets and So­ci­ete Gen­erale.

Among euro zone coun­tries, only Ire­land and Bel­gium have pre­vi­ously sold 100-year bonds, both via pri­vate place­ment, where the bonds are sold di­rectly to a small hand­ful of in­vestors or even just one buyer. Those deals were also far smaller, at 50-100 mil­lion eu­ros each.

Many euro zone coun­tries have taken ad­van­tage of a lowyield en­vi­ron­ment -- fu­elled by ex­tra­or­di­nary stim­u­lus mea­sures put in place by the Euro­pean Cen­tral Bank -- to sell long-dated bonds in re­cent years.

With the ECB now ex­pected to scale back stim­u­lus sooner rather than later, the ex­pec­ta­tion was that this bid for higher-yield­ing long-dated bonds would fade.

But even as cen­tral banks tighten pol­icy, in­vestors show lit­tle sign of re­treat­ing from the riskier debt.

Ear­lier yes­ter­day, Aus­tria’s debt man­age­ment of­fice said it would sell five-year bonds and 100-year bonds for a “bench­mark” size, which typ­i­cally means at least 1 bil­lion eu­ros each, and pos­si­bly much higher.

In fact, bankers work­ing on the deal said the indi­ca­tions of in­ter­est were over 6 bil­lion eu­ros for the cen­tury bonds and over 7 bil­lion eu­ros for the five-year.

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