After Monday, there is perhaps no more amusing juxtaposition in global markets than century bonds issued by Austria and Argentina.
A couple of days ago, I got a chuckle out of Bespoke Investment’s daily newsletter, which highlighted “a pretty nutty looking chart”. That chart: Austria’s 100-year bond since inception. We’ve all seen it, but it never ceases to elicit incredulity.
“Launched in late 2017 with a yield of 2.1%, there were more than a few people who laughed at the fact that anyone would lend money to any government for a hundred years at an annual coupon of just 2.1%”, Bespoke wrote, before quipping that “the only people laughing now are the ones who bought it”.
Austria’s century bond started making headlines again in June when it was re-opened amid a voracious global hunt for yield catalyzed by a combination of slowing global growth, collapsing inflation expectations and the assumption of perpetual central bank accommodation.
Marcus Ashworth, writing for Bloomberg Opinion, penned a number of highly amusing posts on it, including a June 27 piece marveling at how well the re-open went. To wit:
So even 1.2% wasn’t a low enough yield for Austria’s magic 100-year bond. The country managed to get a new sale away of this ultra-long duration paper with a staggeringly cheap 1.17% interest rate, and still the debt crowd was queuing up to buy it. There were 5.3 billion euros ($6 billion) of orders for the 1.25 billion euro offer, which tells its own story. This must be the most vivid example yet of the markets’ desperate hunt for yield – any yield.
Let that sink in – it was four times oversubscribed despite having staged a rally so absurd that most observers have been forced to lapse into superlatives, bad bond jokes and esoteric fixed income humor to describe it.
“Slightly less than two years ago, the Republic of Austria issued a 2.1% 100-year bond at EUR 99.502 [and] today they closed at EUR 189.92, up EUR 2.29 from Friday, for a yield of 0.78%”, BofA’s Hans Mikkelsen mused on Monday afternoon, adding that the ongoing rally “highlights the collapse in global yields, which continued today on recession risk arising from the US-China trade war as well as geopolitical risks associated with the developments in Hong Kong”.
But there’s another reason why safe-havens were bid on Monday – namely that Argentina suffered a meltdown of epic proportions which included, among other dubious highlights, the second-largest single-day stock market rout for any benchmark going back seventy years. Argentine stocks dropped 48% in dollar terms on Monday.
Along for the (bumpy) ride were the country’s own century bonds, which plunged.
Mikkelsen draws the comparison. “A bit more than two years ago the Republic of Argentina also issued a 7.125% 100-year bond at USD 90”, he rather dryly notes, as though anyone has forgotten that aberration. “Today they dropped $18.45 to close at $56.38”.
Hans does a simple side-by-side, just for fun.
Welcome to the twilight zone. What a time to be alive.