LONDON (Reuters) – Extra governments are promoting bonds that mature in 30, 50 and even 100 years’ time, capitalising on rock-bottom borrowing prices and a willingness amongst traders to look previous dangers for the sake of barely larger yields.

After Germany’s state of North Rhine Westphalia (NRW) raised 2 billion euros on Jan. 5 through a 100-year concern, France stated on Monday it might quickly promote a 50-year bond, its first new debt at that maturity since 2016.

A brisk begin that has additionally seen Mexico and Indonesia promote 50-year bonds may imply issuance volumes strategy ranges seen in 2016, when euro zone governments bought a report 19 billion euros of bonds with maturities of 30 years and over.

“It feels extra like 2016,” stated Lee Cumbes, head of public sector debt, EMEA at Barclays. “Contemplating agency demand from traders and the issuers’ present perspective, it looks like issues are lining up for a excessive quantity market once more this 12 months.”

For debtors, it’s a no brainer — promoting ultra-long debt permits them to lock in rates of interest squashed to traditionally low ranges by central financial institution stimulus.

Governments may additionally search to easy out a leap in borrowing to cowl the prices of coronavirus; euro space internet issuance alone will attain 541 billion euros this 12 months, Societe Generale estimates, versus 531 billion euros in 2020.

That backdrop of low rates of interest has already seen many euro zone governments prolong the typical maturity of their debt because the bloc’s disaster of final decade, saving taxpayer cash.

Extremely-long debt nonetheless stays a fraction of the general market, accounting final 12 months for about 14.6 billion euros of an estimated 1.23 trillion of gross issuance by euro zone governments, Rabobank knowledge reveals.

Graphic: Extremely-long bond issuance within the euro space:

Lengthy points carry dangers for traders, nevertheless — above all of inflation rearing its head and hurting bond costs. And the longer the tenor, the higher such length threat.

However confronted with some $17 trillion in negative-yielding debt worldwide, fund managers are clamouring for property providing even a couple of additional foundation factors of yield.

One resolution is to maneuver additional out the curve. France’s current 50-year concern as an example yields 0.5%, versus -0.3% for its 10-year debt.

“I can guarantee you traders don’t wish to purchase NRW at 1% however are compelled to purchase length and which means ultra-long bonds,” stated one banker who arranges European authorities bond gross sales.

Barclays’ Cumbes, who was concerned within the NRW deal, famous the German state had bought such bonds for a 3rd straight 12 months now and every time “these order books have elevated, together with bigger deal measurement and earlier timing within the 12 months”.

Graphic: Austria’s 100-year bond:

HITTING A CENTURY

Even the 100-year tenor has already been tapped by firms reminiscent of Walt Disney and Coca-Cola and sovereigns reminiscent of Mexico, which bought its first century bond in {dollars} in 2010, and Austria, which did so in 2017.

Austria’s 2020 century concern noticed demand surpass the quantity bought by practically 9 instances.

Peru and Israel additionally positioned 100-year bonds final 12 months, with traders apparently undeterred by Argentina’s default on the century bond it bought in 2017.

The share of long-dated debt in rising markets has the truth is elevated lately to almost one-third of total provide, Morgan Stanley analysts observe.

And the skew is shifting in direction of tenors of 35 years or over, they are saying, estimating rising sovereigns bought $24 billion price of such debt in 2020 — eight instances greater than in 2019.

Graphic: Rising markets: ultra-long bond issuance<br>:

Few analysts count on European issuers to go down the century route, sticking as a substitute with the extra acquainted 50-year space. Spain, Italy and Belgium are seen as candidates for this maturity.

However Saxo Financial institution strategist Althea Spinozzi says Italy may in all probability increase 100-year money at round 2.5%.

“The market just isn’t speaking a few 100-year bond from Italy however at this time limit why not?” she stated. “There’s low reinvestment threat and traders can take extraordinarily lengthy length and mainly trip the ECB” — a reference to the suppression of borrowing prices by European Central Financial institution stimulus.

The exception to the ultra-long pattern could also be america, the world’s greatest single sovereign borrower.

It bought 20-year bonds final 12 months for the primary time since 1986, an indication maybe that it nonetheless sees room to focus on conventional factors of the curve.