More governments are selling bonds that mature in 30, 50 and even 100 years' time, capitalising on rock-bottom borrowing costs and a willingness among investors to look past risks for the sake of slightly higher yields.
After Germany's state of North Rhine Westphalia (NRW) raised 2 billion euros on Jan. 5 via a 100-year issue, France said on Monday it would soon sell a 50-year bond, its first new debt at that maturity since 2016.
A brisk start that has also seen Mexico and Indonesia sell 50-year bonds could mean issuance volumes approach levels seen in 2016, when euro zone governments sold a record 19 billion euros of bonds with maturities of 30 years and over.
"It feels more like 2016," said Lee Cumbes, head of public sector debt, EMEA at Barclays. "Considering firm demand from investors and the issuers' current perspective, it seems like things are lining up for a high volume market again this year."
For borrowers, it's a no-brainer -- selling ultra-long debt allows them to lock in interest rates squashed to historically low levels by central bank stimulus.
Governments might also seek to smooth out a jump in borrowing to cover the costs of coronavirus; euro area net issuance alone will reach 541 billion euros this year, Societe Generale estimates, versus 531 billion euros in 2020.
That backdrop of low interest rates has already seen many euro zone governments extend the average maturity of their debt since the bloc's crisis of last decade, saving taxpayer money.
Ultra-long debt nevertheless remains a fraction of the overall market, accounting last year for about 14.6 billion euros of an estimated 1.23 trillion of gross issuance by euro zone governments, Rabobank data shows.
Long issues carry risks for investors, however -- above all of inflation rearing its head and hurting bond prices. And the longer the tenor, the greater such duration risk.
But faced with some $17 trillion in negative-yielding debt worldwide, fund managers are clamouring for assets offering even a few extra basis points of yield.
One solution is to move further out the curve. France's existing 50-year issue for instance yields 0.5% , versus -0.3% for its 10-year debt .
"I can assure you investors don't want to buy NRW at 1% but are forced to buy duration and that means ultra-long bonds," said one banker who arranges European government bond sales.
Barclays' Cumbes, who was involved in the NRW deal, noted the German state had sold such bonds for a third straight year now and each time "those order books have increased, along with larger deal size and earlier timing in the year".
HITTING A CENTURY
Even the 100-year tenor has already been tapped by companies such as Walt Disney and Coca-Cola and sovereigns such as Mexico, which sold its first century bond in dollars in 2010, and Austria, which did so in 2017.
Austria's 2020 century issue saw demand surpass the amount sold by nearly nine times.
Peru and Israel also placed 100-year bonds last year, with investors apparently undeterred by Argentina's default on the century bond it sold in 2017.
The share of long-dated debt in emerging markets has in fact increased in recent years to nearly one-third of overall supply, Morgan Stanley analysts note.
And the skew is moving towards tenors of 35 years or over, they say, estimating emerging sovereigns sold $24 billion worth of such debt in 2020 -- eight times more than in 2019.
Few analysts expect European issuers to go down the century route, sticking instead with the more familiar 50-year area. Spain, Italy and Belgium are seen as candidates for this maturity.
But Saxo Bank strategist Althea Spinozzi says Italy could probably raise 100-year cash at around 2.5%.
"The market is not talking about a 100-year bond from Italy but at this point in time why not?" she said. "There's low reinvestment risk and investors can take extremely long duration and basically ride the ECB" -- a reference to the suppression of borrowing costs by European Central Bank stimulus.
The exception to the ultra-long trend may be the United States, the world's biggest single sovereign borrower.
It sold 20-year bonds last year for the first time since 1986, a sign perhaps that it still sees room to target traditional points of the curve.
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