UltraLong Bond Madness – Issuance Of 30 Year+ Maturity Debt Soars 22% In 2014

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation.

Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!


We learn from the Wall Street Journal that:

Global sales of sovereign and corporate bonds that mature after 30 years have reached $142.5 billion this year as of Tuesday, a 22% rise from the same period last year and a 55% jump from the same period in 2012, according to data provider Dealogic. Their growth far outpaces sales of government and corporate bonds due in 30 years or less. Those bond offerings totaled $5.236 trillion so far this year, a 4.6% increase from the same period in 2012.


France, Austria, Switzerland, Japan and the U.K. have sold ultralong bonds this year denominated in local currencies. In the developing world, Mexico sold a 100-year bond in March denominated in British pounds. Canada sold its first 50-year bond in April and sold more in July.


In the corporate world, McDonald’s Corp. sold a 40-year £300 million ($506 million) bond in June denominated in British pounds.


Caterpillar Inc. in May sold $500 million of 50-year bonds yielding 4.767%, only 1.375 percentage points more than 30-year U.S. Treasurys at the time.


But the robust demand for long bonds highlights a number of powerful factors often ignored by analysts and traders. These include the longer-term perspective of buyers such as pensions and insurers, who struggle to match future obligations with long-lived, income-generating assets, and the shrinking pool of long-term debt available to investors amid hefty Fed purchases.


“You pick up extra yields from ultralong bonds,” said Erik Schiller, senior portfolio manager on global government bonds at Prudential Financial Inc.’s fixed-income unit, which oversees more than $400 billion. “People care about income right now.”


Institutional buyers have been flocking to the debt. The California Public Employees’ Retirement System, the largest public pension fund in the U.S., this year approved investment goals that stand to boost bondholdings at the expense of stocks. A Calpers representative declined to elaborate.

Ah, Calpers. The largest pubic pension in the nation, which seems to have no clue what it’s doing. But I’ll get to that later…

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