When Austria sold a fresh batch of 100-year bonds in the summer of 2020, the 0.85% coupon was deemed so juicy that Vienna received some €16 billion of orders.
On Tuesday, the yield on that ‘century bond’ maturing in 2120 was flirting with 3%, its price having fallen below €33, according to Tradingview.
That 67% price decline is a reminder to investors about duration risk, or the senstivity of an asset to changes in interest rates. In the case of bonds, the longer the maturity, in simple terms, the greater duration risk.
Clearly, that made a 100-year bond, launched at a time when central banks were artificially suppressing interest rates, especially risky.
However, duration risk also can be duration opportunity, and initially investors were well rewarded. By December 2020, as COVID fallout battered economies across Europe, the yield on the Austrian 2120 bond fell below 0.4%, as the price doubled to €200.
Then the U.S. 10-year Treasury yield
BX:TMUBMUSD10Y
was below 1% and the German equivalent
BX:TMBMKDE-10Y
was near negative 0.6%.
But today they are 4.7% and just shy of 3% respectively after central banks such as the Federal Reserve and ECB reversed their ultra-loose monetary policies to tackle resurgent inflation.
Cue century bond carnage.
As Peter Boockvar, chief investment officer at Bleakley Financial Group LLC, told Bloomberg’s Tracy Alloway earlier this year: “Duration bites right now and there is no better example than this bond…This is not a meme stock and not a high flying tech stock but a sovereign bond with an AA+ credit rating.”
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