Austria is considering a second €3bn sovereign bond issue with one-century maturity; in September 2017, Vienna was the first to issue €3.5bn of 100-year bonds. Since, Belgium and Ireland have followed with their own issues.
The timing for the Austrian issue is timely, with US, Japanese, British, and Eurozone interest rates being low. This creates a challenge for so-called “fixed income” funds in the insurance sector. Seeking higher yields and low volatility, risk-averse institutional investors are willing to consider longer-than-usual maturities.
Within 2019, Austria will explore investor demand with a €1bn of 100-year bonds issue, but the experience has thus far been extremely positive. In 2017, the century-issue was oversubscribed by three times the value of the auction, drawing bids of €11.4bn. The century-long Austrian bond offers yields of 1.12%, whilst initially issued with a coupon of 2.1%.
Given a global economic slowdown, the US Federal Reserve is expected to cut interest rates, as is the Bank of England. Meanwhile, the European Central Bank is bracing for quantitative easing by expanding its €2,6 trillion program, while Germany plans to seize issuing debt for a two-year period, and triple-A rated sovereigns like Austria, France, Finland, and Sweden offer five-year bonds at a negative yield.