It just keeps on getting whackier. We recently remarked about the Austrian 100-year bond going parabolic, but flat-out vertical might now be the better term.
After the original 2.1% coupon bond was issued at EUR 3.5 billion in September 2017, the issue was reopened with another EUR 1.3 billion tranche in late June this year, and was priced at 160% of par to yield about 1.1%. Since then, the rocket has just kept rising to nearly 211% of par.
That is, in less than two years, the bond’s price is up 110% and its yield has dropped to below 0.75%. So what is supposed to be a sober 100-year sovereign bond is trading like a red hot IPO, yet with a greater certainty of massive losses than even the go-go flavor of the month called Beyond Meat Inc, which was recently valued at a lunatic 130X sales.
Self evidently, if the world economy survives today’s rampant statism and if Austria remains a solvent state through 2117, then in 98 years time the bond shown below will be redeemed at par (100.00).
So no matter how many thousands of times this security is shuffled in the interim between a descending chain of Greater Fools, the group as a whole will lose 53% of today’s purchase price, while collecting a diminutive coupon that barely covers inflation and taxes—to say nothing of the value of giving up the money for 98 years’ time.
Still, when the talking heads are asked to explain why anyone in his/her/their right mind would be buying this hideous loser or, for that matter, only slightly less stupid alternates such as the 10-year German bund at -0.71% earlier today, Wall Street’s soporific answers tell you all you need to know about the runaway speculative mania that the central banks have unleashed upon world financial markets.