Century bond or Austria 100Y zero coupon bond was issued in mid-2018 during the negative interest rate period (EURIBOR -0.26%) when investors turned to long-dated bonds in search of extra returns. The bond yielded 2.112% at the time of issuance with a maturity date of 2118.

Bonds were purchased by institutional investors such as pension funds and insurance companies, perceived as a safe investment.

Long-dated bonds have a high duration which makes them susceptible to interest rate moves. Even if the credit risk is low in this case (Austria is unlikely to go bankrupt), price risk is very high. The abovementioned bond price started to decline with emerging expectations of future interest rate hikes.

The bond lost ~95% (traded on ~5 cents on EUR) of its value and to see a full recovery of principal, investors will have to wait 95 years (or till the moment of negative interest rates).

But if you believe in interest rate cuts or relaunched QE, the potential upside is enormous.

Susijusių įrašų nėra… Atsitiktiniai įrašai:

• Investuotojų iracionalumo apraiškos
• Peak Time 2009
• Investavimo mados ir tendencijos
• Seminaras: Geniali atmintis
• Baltijos šalių akcijų koreliacija