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 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 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%).
What is generally the reason for a company to issue bonds responses? ›
Raising Capital:
The most straightforward reason for issuing bonds is to raise money for various needs such as financing ongoing operations, expanding into new markets, or launching new products. Unlike equity financing, issuing bonds allows a company to raise capital without diluting ownership.
Why issue long term bonds? ›
Long-Term Yields
In a healthy economy, yield curves on bonds are typically normal with longer-term maturities paying higher yields than shorter-term maturities. Long bonds offer one advantage of a locked-in interest rate over time.
Why do corporations issue bonds Quizlet? ›
units or corporations issue bonds to borrow money for expansion, construction, & other purposes. In return for the loan, investors (bondholders) receive interest payments twice per year, and at the end of their term, they get their principal back.
What is the purpose of a bond issue? ›
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 do companies issue 100-year bonds? ›
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.
What companies have 100-year bonds? ›
The U. S. Bond Market
The Disney 100-year bond was not the only 100-year bond ever issued or was 100 years the longest term ever written for a bond. Canadian Pacific Corporation had on its books a 1,000-year bond, due in 2883, issued by the Toronto Grey and Bruce Railway.
What does 100 bond mean? ›
A 100% home loan, also called a 'zero deposit bond', is a bond that covers the full purchase price of the property, so you would not be required to put down a deposit as part of the deal.
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.
Why would a company issue a bond rather than borrow from a bank? ›
Banks place greater restrictions on how a company can use the loan and are more concerned about debt repayment than bondholders. Bond markets tend to be more lenient than banks and are often seen as easier to deal with. They leave it to the rating agencies to grade the bonds and make their decisions accordingly.
Why does the US issue bonds? ›
Government bonds assist in funding deficits in the federal budget and are used to raise capital for various projects such as infrastructure spending. However, government bonds are also used by the Federal Reserve Bank to control the nation's money supply.
What are two reasons why a company would choose to issue bonds? ›
By issuing bonds on the open market, a company may have relatively more freedom to operate in its own way while also raising money to finance day-to-day operations, fund a new project, expand into a new market, etc. In addition, bonds can lower companies' long-term or short-term funding costs.
What is the advantage of issue bonds? ›
Bonds provide flexibility for a corporation: it can issue bonds of varying durations, value, payment terms, convertibility, and so on. Bonds also expand the number of investors available to the corporation. From an investor standpoint, bonds are generally less risky than stock.
Why are bonds a good long-term investment? ›
The reason is that an investor can have greater control over their cash flows, rather than being subject to reinvestment risk—that is, the risk of having to reinvest a maturing security at a lower interest rate in the future.
Why would a company want to sell bonds? ›
When companies or other entities such as governments need to raise money for new projects, to fund operations, or refinance existing debts, they may issue bonds directly to investors. Many corporate and government bonds are publicly traded on exchanges.
Why issue a bond instead of a loan? ›
Banks place greater restrictions on how a company can use the loan and are more concerned about debt repayment than bondholders. Bond markets tend to be more lenient than banks and are often seen as easier to deal with. They leave it to the rating agencies to grade the bonds and make their decisions accordingly.
Why would a firm decide to call a bond issue? ›
Extraordinary redemptions allow the issuer to call its bonds in the event of certain specified—and as its name suggests, extraordinary—events, such as damage to the assets collateralizing the debt or the failure of a project the debt was issued to finance. These events are spelled out in the bond's offering statement.
