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100-Year Bonds?

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Would you buy a bond that will only mature after you're long gone?

The latest Treasury Borrowing Advisory Committee meeting included discussion of issuing ultra-long bonds with maturities from 40 years to as long as 100 years. This ultra-long Treasury bond discussion follows actual issues of such bonds in the corporate bond market last year. Last summer, Norfolk Southern (NYSE: NSC  ) sold bonds that won't mature until 2105. Goldman Sachs (NYSE: GS  ) followed in October with a 50-year bond issue.

Long-dated bonds are available on the market, but they aren't very common. A search at for bonds maturing 50 to 100 years in the future turned up about 130 corporate bond issues and almost 60 municipal issues. One bond issued by the federally owned Tennessee Valley Authority comes due in 2060.

Even though ultra-long Treasuries may never be issued, the prospect does have some takeaways for investors. Few individual investors have investment horizons stretching out over a century, so ultra-long maturity bonds are typically sold to institutional investors with long time horizons. Even though most individuals would not be interested in owning these bonds, there are at least two reasons they should be interested in the very long end of the bond market.

First, if corporations increase issues and if the U.S. Treasury starts selling very long bonds in significant amounts, they'll extend the average maturity of bond indexes. That would push the maturity out for exchange-traded funds such as Vanguard Total Bond Market (NYSE: BND  ) , iShares Barclays Aggregate Bond (NYSE: AGG  ) , and other funds that track those indexes. A longer maturity makes the fund more sensitive to interest rate changes. That's not necessarily a problem, but it is something investors should be aware of.

Next, and more important, longer issues are a signal that smart money wants to lock in interest rates while they're low. Even if the Treasury doesn't issue any ultra-long paper, it already wants to increase the average maturity of debt outstanding. The Treasury Borrowing Advisory Committee minutes pointed out that long bonds would be "consistent with Treasury's goal to continue to extend the average maturity of outstanding debt."

There's only one likely reason a major railroad, an investment bank, and the U.S. Treasury are all moving toward longer-term debt. They want to lock in before rates head higher.

What's your opinion? Are rates done climbing or are they headed higher? Tell us in the comments box below.

More bond Foolishness:

Fool contributor Russ Krull does not have have a financial position in any of the companies mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (7)

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  • Report this Comment On February 04, 2011, at 2:44 PM, pondee619 wrote:

    Why would anyone, or anything, buy a 100 year bond?

    "There's only one likely reason a major railroad, an investment bank, and the U.S. Treasury are all moving toward longer-term debt. They want to lock in before rates head higher."

    "longer issues are a signal that smart money wants to lock in interest rates while they're low"

    If the sellers want to lock in low interest payments for next to forever, why should anyone be willing to cut them that break? Can anyone, indivual or institution, see 100 years into the future? Does anyone here remember the late 70's early 80's? The question then was why would anyone buy a 30 year bond and tie your money up for 30 years for ONLY 13%. Statement savings accounts were paying 7%, mortgages were charging 15%+/-. Everything was increasing in price weekly. Times sure have changed and they will probably do so again.

    In order to sell a 100 year bond, you need a buyer. Why would anyone buy such a thing? What has been the history of interest rates over the past 100 years? How could anyone commit their money for such a span? If there are few buyers, can there be a product?.

  • Report this Comment On February 04, 2011, at 2:45 PM, menelyik wrote:


    On the other hand, the main reason for selling 100-year bonds is confidence that they will NEVER have to pay them back ....

  • Report this Comment On February 04, 2011, at 3:31 PM, FundInsider wrote:

    This is similar to insurance companies selling

    annuities. People willingly give an upfront payment

    for a lifetime of regular income payments, and the only reason to do so is if you believe the insurance firm will last, and that the rates offered are attractive at time of purchase.

    So ask yourself if you think the US will be solvent

    for your lifetime, and if you think rates are headed up or not. Does not matter if you'll be around in 100 years. It is the present value of the cashflows that matter, and the PV of a payment 100 years from now is almost zero, so you are not paying much for that last payment anyway.

    What is more relevant in this article is the possible impact on bond indices/index funds such as BND, though it remains to be seen how much issuance will be so long. If a small % of the outstanding bond market, as I suspect, might be minimal impact on BND's risk/duration.

  • Report this Comment On February 04, 2011, at 3:33 PM, graybell wrote:

    A hundred-year at the right interest rate would be attractive; but it would obviously have to be substantially higher than shorter-term bonds. There's no question that interest rates are going up; they can't go any lower. The only question is when. And no one really knows. Most investors, including institutions, are betting they won't go up substantially this year or next--not until this recovery brings down unemployment.

  • Report this Comment On February 04, 2011, at 7:21 PM, rd80 wrote:

    @pondee619 - The NSC and GS issues last year both drew strong demand and the advisory minutes state "significant demand exists for high-quality, long-duration bonds from entities with longer-dated liabilities"

    I wouldn't buy the things, but apparently there is demand.

    Thanks all for the comments.


  • Report this Comment On February 05, 2011, at 4:43 AM, NewSiriFan wrote:




  • Report this Comment On February 06, 2011, at 8:15 PM, TraderHW wrote:

    Based on future expected inflation the bond would have to pay 40% or more.

    Check out the latest from the Capital Research Institute about manipulation of GDP and unemployment data:

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