Long bonds attract buyers

BlackRock, the world’s biggest money manager, says it snapped up some of the eurozone’s long-dated government bond issues recently, attracted by their relatively high yields as well as signs of economic progress in the countries concerned.

Long bonds attract buyers

“We’ve been active in some of those issues,” said Michael Krautzberger, BlackRock’s London-based head of European fixed income.

“Some of the non-German yield curves in Europe are very, very steep. That’s what makes it potentially interesting.”

On Friday, France announced a 30-year bond auction that will take place on Thursday, but the bulk of attention has been on the surge in half-century issuance.

France has also led the way with a sale of 50-year bonds in April, with Belgium and Spain following suit and Italy’s debt agency saying earlier this month it was evaluating demand for a deal.

In late March, the National Treasury Management Agency sold a 100-year debt for the first time and raised €100m at a yield of 2.35%.

It was sold by private placement through two of the NTMA’s primary dealers, Goldman Sachs and Nomura International.

“This ultra-long maturity is a significant first for Ireland and represents a big vote of confidence in Ireland as a sovereign issuer,” NTMA director of funding and debt management Frank O’Connor said at the time.

The ultra-long bond issues receive support from pension funds and money managers seeking to match their liabilities and looking to profit in a market where shorter-term yields have been pushed near — and in some cases below — zero.

Eurozone bonds maturing in at least two decades have returned almost 9.6% in 2016, almost three times the gain across the whole market.

This has pushed investors further out along the maturity spectrum — and into so-called peripheral nations’ bonds rather than benchmark German debt.

At 1.23 percentage points, the extra yield buyers get for holding Spanish 30-year bonds instead of those maturing in 10 years yesterday was about a half percentage point more than on a similar trade using German bunds.

“This era of negative interest rates and negative yields in bond markets has now become a reality rather than just an aberration,” said Sandra Holdsworth, an Edinburgh-based money manager at Kames Capita.

“So we’re seeing more and more the yield curves flattening in the longer end as demand moves.”

Bloomberg with additional reporting by Irish Examiner staff.

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