100-Year Bonds Could Alter How Rate Risk Is Traded (P&L With Paul Sweeney and Lisa Abramowicz, 32 min listen)
Marcus Ashworth, Bloomberg Opinion columnist covering European markets, explains the risk that comes with issuing 50- or 100- year bonds which lock the current low rates for a lengthy period: they kill liquidity and are highly sensitive to interest rate fluctuations (we discuss more in the next podcast). However, the hunt for yield has already enticed a number of European countries. Following Ashworth’s discussion, Deepak Puri, Americas CIO at Deutsche Bank Wealth Management, highlights cautiousness going into the next quarter as bond yields sink from their previous highs. He is bullish on equities long-term, however, due to strong corporate earnings. Midway through the podcast the discussion switches to art as the best investment for 2018 – it was up 10.6%. Art collector Harvey Manes advocates portfolio diversification with pieces by up-and-coming artists, which are currently cheap but likely to surge. Finally, the podcast ends with predictions about Hurricane Dorian: instead of insurance giants, it is the smaller regional insurers that will be most impacted.
Why does this matter? Stubbornly low rates have pushed countries like Austria to sell century bonds earlier this year with a mere 1.2% yield. Even serial defaulter Argentina sold a 100-year bond in 2017. Some investors like pension funds are favouring the rate-sensitive bonds, assuming they are protected against inflation and they are able to match the duration of their assets and liabilities. In general, we don’t see investors queuing for these bonds, but they might be forced into safety.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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