April 29, 2016 / 1:01 PM / 4 years ago

Belgium joins long-end march with 50-year bond

* ECB-displaced investors seek yield at long-end

* Demand in excess of 8bn for debut 50-year

By Helene Durand

LONDON, April 29 (IFR) - Belgium brought a long-rumoured 50-year bond to market this week, becoming the latest sovereign to extend the duration of its debt and lock in ultra-low rates as investors scramble for yield.

The 3bn debut, part of a dual-tranche foray, came a mere 16 days after the dust settled on a 3bn deal from France at the same tenor - a highly unusual maturity for the bond market.

While longer dated trades are not unusual for public sector borrowers, 50-years has been little-tested. But the European Central Bank’s expansion of quantitative easing purchases from 60bn to 80bn a month is forcing investors to shift further out the curve.

“I am still scratching my head as to how a country that was still divided, didn’t have a government a few years ago and saw its yields sky-rocketing during the eurozone crisis can raise 50-year debt,” said a syndicate banker away from the trade.

“I question why investors are prepared to give what’s effectively equity at these type of levels. It seems a sign of desperation that people are not buying assets based on real value.”

Eurozone government issuance at 10-years and longer so far in 2016 stands at over 70bn, according to Commerzbank analysts, with 20-year and longer borrowing already exceeding the past few years’ full-year totals.

“Other issuers’ ears have pricked up,” a banker on Belgium said. “It’s one thing when it’s a one-off, but when it’s been replicated and performs well, I wouldn’t be surprised to see more.”

Combined demand for the 3bn long seven-year and 3bn 50-year was in excess of 14bn, with more than 8bn of that from almost 200 investors for the longer tranche. That exceeded the 7bn garnered by France and the 6.3bn-plus book from some 100 accounts on Belgium’s seven-year.

The lead said there has been a displacement effect from the ECB’s buying of bonds with tenors between two and 30-years.

“It’s desperation but investors are getting over 2% and there is nothing else available in core Europe with these yields.”

France’s 2066 bond priced at a 1.916% yield, while Belgium’s came at 2.1854%. The launch spread between them this week was 17bp, which followed guidance of plus 18bp area and high teens initial talk. The seven-year printed at 13bp through swaps. Guidance was less 12bp area and initial talk less 11bp area.


The idea of a 50-year had been germinating at the Belgian DMO since the end of 2014, but the issuer chose to hold back because conditions were not optimal.

“The yield levels we can lock in with very long transactions are very attractive and thus help stabilise the servicing cost of our debt and of the budget in general,” said Anne Leclercq, director, treasury and capital markets at the Belgian debt agency.

Eurozone sovereigns have made the most of ultra-low rates in recent weeks to extend the maturity of their debt. Italy, Belgium, Austria and Spain have all issued at 30-years - Italy for a record-breaking 9bn. In addition, Ireland printed a 200m 100-year bond with a coupon of 2.35% in late March.


Belgium priced a 100m 2.3% 100-year private placement last week through Goldman Sachs and Nomura, its second such deal at the tenor.

Some bankers were puzzled by the trade, with many scratching their heads as to who the mystery buyer of ultra-long eurozone debt could be and why anyone would buy debt they would not see mature at such a low yield.

“The 100-year is a different product from the 50-year syndication,” said Leclercq.

“It’s done under our EMTN programme with investors brought to us by our primary dealers who have an interest in the maturity and we respond to it. As to why they buy it, it’s a question we ask ourselves. They surely have liabilities they need to match and/or target a certain yield and a certain duration. We know more or less who it is, but it’s not made public.”

Barclays, Credit Agricole, JP Morgan, Morgan Stanley, Natixis and Societe Generale led the Aa3/AA/AA rated seven and 50-year bonds. (Reporting by Helene Durand, editing by Alex Chambers, Julian Baker)

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