Oh how I laughed! I can see why both businesses and sovereigns are keen to tap into the demand for very long dated bonds. It makes absolute sense for the issuers. Low interest rates for the rest of our life! Who wouldn’t? I suppose I can just about see the logic for pension funds, in need of long dated investment options. But honestly why pay a fund manager if all they are going to do is buy a bond that will probably be around longer than the fund management company? Crazy.
What’s even more audacious is that the latest entity proposing to raise the money is Argentina. As in the ex Peronist, serial defaulter, now run by a perfectly sensible ex businessman. I wish them well but really….you are having a laugh ! Anyway here’s the note today from Bloomberg on it followed by a comment from Ashmore, a specialist house in emerging market debt.
First up the Bloomberg article from today.
“Argentina will test investor confidence by offering its first 100-year bond barely a year after finally settling a protracted legal dispute tied to a $95 billion default.
The government of South America’s second-largest economy would join Mexico, Ireland and the U.K. in selling debt that matures over a century, which is often particularly attractive to insurers and pension funds seeking to lock in long-term returns. Argentina, for its part, is taking advantage of historically low borrowing costs to finance the budget and pay off debt that’s maturing in the next few years.
Argentina has staged a spectacular turnaround after last year ending its long-running dispute with creditors over its 2001 default, issuing a then-record amount of debt for an emerging-market country and posting better-than-average gains over the past 12 months. Its debt now yields an average of about 4 percentage points more than similar-maturity U.S. Treasuries, less than one-third the level of just four years ago.
“Good for them,” said Michael Roche, a New York-based fixed-income strategist at Seaport Global Holdings LLC, who recommends buying the century bonds. “Spreads are low and looking stalled, so they should lock them in for as long as possible.”
The notes will be sold at 90 cents on the dollar to yield 7.917 percent, according to a person with knowledge of the matter, who asked not to be identified because the deal is private. Citigroup Inc. and HSBC Holdings Plc are managing the sale. The issuance plan was confirmed by the Finance Ministry, which hasn’t provided further details.
Yields on Argentine government notes rose, with the average spread over U.S. Treasuries widening 6 basis points to 4.12 percentage points, according to JPMorgan Chase & Co. data.
Next up, here’s Alexis De Mones, Head of Fixed Income at Ashmore Group.
“The 100-year bond issue being mooted is a sign of Argentina’s very opportunistic approach to government funding, which mixes domestic and international issuance. There is a very healthy level of demand for sovereign bonds at present, including via large flows into indexed products that will buy any index-eligible assets. Argentina is clearly trying to tap into this, as well as low treasury yields at present, to lock in cheap term funding.
“The decision to tap the 100-year sector is unusual for a credit with a chequered history, but the absolute yield level of these bonds will attract a certain type of investor. Price guidance, as well as the final size, which hasn’t been confirmed yet, will determine the ultimate success of this new bond issue.”