Looked at Google's gigantum bond issuances this past week. Mr. Jakab did too:
https://m.stacker.news/130338
What are your plans 100 years from now?
Unless you’re a really young reader of investing newsletters, we regret to inform you that “being dead” is probably on the agenda. That hasn’t stopped Google parent Alphabet from offering a bond maturing in 2126.
"It’s obvious why companies want to sell century bonds, but not why some investors clamor to buy them. That disconnect is a prime example of the difference between you and a professional fund manager: What sounds risky and unnecessary is desirable in certain corners of finance.""It’s obvious why companies want to sell century bonds, but not why some investors clamor to buy them. That disconnect is a prime example of the difference between you and a professional fund manager: What sounds risky and unnecessary is desirable in certain corners of finance."
The problem with very long-dated bonds isn’t just that you have to wait forever to get your money back. Companies, countries and universities that issue them have snagged very attractive rates.
That creates a potentially nasty combination for the bond’s price because of a concept called duration—how distant most of its promised cash flows are. Higher duration equals more sensitivity to prevailing yields. When the seller of a century bond offers a historically low coupon then interesting things can happen.
But buying it helped solve a problem for insurers and pension funds. Since they have extremely long-dated liabilities—people’s lives—their managers crave long-duration but “safe” investments. It’s a match made in heaven for highly rated issuers.
Some hedge funds love century bonds, too, but for a different reason. If they suspect bond yields will go down, even by a bit, they can reap big gains trading them.
Century bonds/perpetuals are amazing. Not sure why anybody in fiatland wants to own them, though. Because... oops?
Highly indebted western governments will need to either slash spending or raise taxes substantially to cope with their growing pile of IOUs. Politicians will be tempted to let inflation whittle them down instead, incinerating the value of very long-term bonds.
archive: https://archive.md/5t2UQ
How many companies ever even last 100 years?
A few, but I never understood why this critique mattered... Even in bankruptcy/acquisition, the liability just transforms or gets paid or taken over by someone else... Doesn't matter that the exact current form of the company assets won't exist that long, no?
That would depend on the nature of the company's demise and who has top priority, wouldn't it?
A little, I guess. No guarantee you as a bondholder will be paid par value
This.
I don't find the demand from pension funds very convincing. Would the pensioners themselves have chosen the 100 year bond? Seems like there could be a misalignment between the incentives of the fund managers and their beneficiaries. Perhaps the pension fund managers are in bed with the finance bros at Google?
Duration matching, I'd say. They want instruments that balance their outstanding obligations (ie pension liabilities thirty-fifty years out)