Although it is rare, companies and governmentsdo issue bonds with a century-spanning term. For example, multi-billion dollar corporations such as the Walt Disney Company (DIS) and Coca-Cola (KO) 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 date, meaning 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.
FAQs
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.
Why do companies issue perpetual bonds? ›
The issuer uses perpetual bonds to raise capital at fixed interest or coupon rates, whereas investors constantly purchase perpetual bonds to receive a fixed income. The issuer is not obligated to repay the principal unless the issuer chooses to redeem the bond and exercise the call option.
What does it mean to issue bonds at 100? ›
Issuers usually quote bond prices as percentages of face value—100 means 100% of face value, 97 means a discounted price of 97%of face value, and 103 means a premium price of 103% of face value. For example, one hundred $1,000 face value bonds issued at 103 have a price of $103,000 (100 bonds x $1,000 each x 103%).
Why issue long term bonds? ›
The purpose of a bond issue is to borrow money to finance major capital projects. A capital project is generally defined as a project expected to have a useful life of 10 years or more which is estimated to cost in excess of $100,000.
Why would a company want to issue bonds? ›
The ability to borrow large sums at low interest rates gives corporations the ability to invest in growth and other projects. Issuing bonds also gives companies significantly greater freedom to operate as they see fit. Bonds release firms from the restrictions that are often attached to bank loans.
What are the benefits of a perpetual bond? ›
Infinite coupon payments: Perpetual bonds offer the advantage of infinite coupon payments. As long as you hold the bond, you will continue to receive interest on your investments without any exception.
What is the yield to worst of a perpetual bond? ›
Yield to worst is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting. It is a type of yield that is referenced when a bond has provisions that would allow the issuer to close it out before it matures.
What are the Walt Disney 100 year bonds? ›
The Walt Disney 100-Year Bonds
The Disney bonds came to market with a yield to maturity of 7.55%. They were callable by Disney in 30 years at 103.02% of face value, at lower prices for the next 20 years and at face value for the remaining 50 years as shown in Exhibit 2.
Why issue bonds instead of debt? ›
Bonds can be a very flexible way of raising debt capital. They can be secured or unsecured, and you can decide what priority they take over other debts. They can also offer a way of stabilising your company's finances by having substantial debts on a fixed-rate interest.
Are bonds 100 safe? ›
Although they may not necessarily provide the biggest returns, bonds are considered a reliable investment tool. That's because they are known to provide regular income. But they are also considered to be a stable and sound way to invest your money. That doesn't mean they don't come with their own risks.
The downside of long-term bonds is that you lack the flexibility that a short-term bond offers. If interest rates rise, for instance, the value of a long-term bond will usually go down, penalizing you for having committed to a locked-in rate for the long haul.
What are the disadvantages of issuing bonds? ›
Some of the disadvantages of bonds include interest rate fluctuations, market volatility, lower returns, and change in the issuer's financial stability. The price of bonds is inversely proportional to the interest rate. If bond prices increase, interest rates decrease and vice-versa.
What is one disadvantage a company faces by issuing bonds for long-term financing? ›
A large disadvantage to issuing bonds is that interest must be paid, and the bond's principal must eventually be repaid as well. Types of Bonds: Term bonds: A bond with interest-only payments for several years, with the principal due at the maturity date.
What are the pros and cons of issuing bonds? ›
Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.
Can corporate bonds lose value? ›
Key Takeaways. Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.
What are the pros and cons of corporate bonds? ›
Corporate bonds aren't backed by the government, so they aren't as safe as Treasurys, but that means they'll typically offer higher yields. The interest rate available will depend on the financial strength of the company doing the borrowing.
What does bonds issued at 101 mean? ›
If the bond is trading at 101, it costs $1,010 for every $1,000 of face value and the bond is said to be trading at a premium. If the bond is trading at 100, it costs $1,000 for every $1,000 of face value and is said to be trading at par.
What does it mean to issue bonds at 98? ›
Answer and Explanation: The bond issued at 98 is issued at 98% of its face value and this means that the stated rate of interest was lower than the market rate of interest.
What does it mean if you issue a bond? ›
Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you're giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year.
Do you get money if you issue a bond? ›
Do you Get Bail Money Back in California? All of your bail money will be returned to you if you attend every court appearance. It usually takes 2 or 3 months for this to happen.
