Why Do Companies Issue 100-Year Bonds?
Although it is rare, companies and governments do issue bonds with a century-spanning term. For example, multi-billion dollar corporations such as the Walt Disney Company (DIS) and Coca-Cola (IS) have issued 100-year bonds in the past. Countries such as Argentina, Austria, and Mexico have issued 100-year bonds, too. Why on earth would an investor buy a 100-year bond—one that far exceeds their (and the average person’s) life expectancy?
key takeaways
- Although it is rare, some companies and governments do issue 100-year bonds.
- Institutional investors might use 100-year bonds to lengthen their portfolio’s duration and fulfill other duration goals; individual investors might use them for estate-planning—to pass on wealth to future generations.
- Despite their name, some 100-year bonds can be called early, and so retired long before their century is up.
- 100-year bonds can have negative connotations, suggesting a country needs to extend its debt obligations, or that yields on shorter-term debt are dangerously low.
Why 100-Year Bonds Are Appealing
Companies issue bonds with long maturities for the same reason they do a lot of things: There’s a market demand, and the goal of any business is to profit from that demand. And, when it comes to 100-year bonds, a group of investors does exist that has shown a strong appetite for this sort of debt obligation. Specifically, certain institutional investors use 100-year bonds to lengthen the duration of their bond portfolios to fulfill certain duration-based goals. A university endowment fund, for example, certainly might find these instruments appealing: After all, the educational institution is going to be around for a long time, and it won’t be needing to use the funds in the short-term.
On the other hand, some investors buy 100-year bonds partly because they don’t expect to actually wait 100 years. Many of these bonds and debentures contain an option that lets the debt issuer partially or fully repay the debt long before the scheduled maturity. For example, the 100-year bond that Disney issued in 1993 is supposed to mature in 2093, but the company can start repaying the bonds any time after 30 years (2023). Investors doing long-term estate-planning might also be interested in 100-year bonds, as a means to pass on wealth safely to their children, grandchildren, and even generations beyond.
Some analysts see the demand for this type of long-term bond as an indicator of consumer sentiment for a specific company. After all, who would buy a 100-year bond from a company they didn’t believe would last? For example, if there was especially high demand for Disney’s 100-year bond, this could mean that many people believe that the company will still be around to pay out the bond a century later.
2.1%
Coupon rate of Austrials 100-year bond, maturing on Sept. 20, 2117
The Negatives of 100-Year Bonds
On a more pessimistic note, interest in century-spanning bonds can reflect a dismal present-day return on bonds, such as occurred in mid-2019. Interest rates on 30-year U.S. Treasuries hit all-time lows, and the bonds of other nations actually had negative yields. Institutional investors that have a mandate to generate income, such as pension funds and insurance companies, might well be willing to go long—very long—in their bond-buying, if it means they’ll get a positive return.
The current maximum term for T-bonds is 30 years; however, in mid-2019, with interest rates plunging, the U.S. Treasury Dept. said it would consider issuing 50-year and 100-year debt.
Also, 100-year debt issues are often associated with nations whose economies are shaky, such as Argentina. When a troubled country offers such bonds, it suggests that it’s looking to extend the period it needs to pay its massive debts and meet its obligations.
Beyond the 100-Year Bond
Believe it not, 1,000-year bonds also exist. A few issuers, such as the Canadian Pacific Corporation, have issued such bonds in the past. There have also been instances of bonds issued with no maturity datemeaning that they continue paying coupon payments forever.
In the past, the British government has issued bonds called consols, which make coupon payments indefinitely. These types of financial instruments are commonly referred to as perpetuities.