Posted Jun 28, 2019 by Martin Armstrong
Austria was able to sell its second 100-year bond in history at just a yield of just over 1.00%. Some argue that capital has been forced to buy anything that has a yield which the ECB has been forcing negative interest rates. Why would anyone in their right mind buy a 100-year bond for 1%? The buyers appear to be pension funds who MUST own government debt as a matter of law.
Austria launched the sale of a 100-year bond on Tuesday after overwhelming investor interest gave its debt officials confidence it could become the first Eurozone country to sell a “century” bond publicly through a group of banks. There has been no paper on this part of the yield curve. Because of comments by Draghi, it is also expected that positive yielding paper will vanish in the Eurozone. As it stands, it will take investors 44 years to recoup their original capital. That will surely be a huge loss.
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. There is a serious problem brewing where as a matter of law pension fund must buy government paper and at low rates, the pension funds face massive failures going into the next 6 years.