Would you lend money for 100 years at less than 1%?
In June 2020, investors couldn’t get enough of that deal.
Austria issued €2 billion in century bonds—and, as the July 2020 Global Market Perspective reported, demand was eight times the available supply. Even pension funds and insurance companies were eager to buy.
Interest rates were low. Investors were betting they would keep falling.
GMP called attention to what could happen if that bet went wrong.
What We Said:
The July 2020 issue explained why bonds with longer maturities and lower coupons were particularly vulnerable:
“For century bonds, the duration risk is so high that even a tiny upward blip in interest rates can send the bond price tumbling. So far, investors have ignored the mounting risk.”
The problem went beyond the mechanics of bond pricing. GMP identified the mindset behind the buying:
“Virtually no one can envision a financial future that looks any different from the present.”
Investors were committing money for a century-with expectations shaped by the conditions that described the past but said nothing about the future.
What Happened After?
Interest rates rose. Century-bond prices tumbled.
What Is GMP Watching Now?
In July 2020, investors were lining up to buy. GMP was explaining the danger.
What risks—and opportunities—are today’s investors overlooking?
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