In 2017, when bond yields were super low, Austria introduced its first 100-year bond, paying a coupon of 2.1%.
Demand surged. So, in mid-2020, Austria sold another century bond, paying a coupon of only 0.85%. Even so, investors were so hungry for yield, the bond sale attracted more than eight times the available supply.
Indeed, a June 2020 Bloomberg article noted:
The attraction of ultra-long bonds with very low coupons is that their prices rise more sharply when yields fall… This means the price outperforms when interest rates drop (as they’re doing now), which is overall good news for investors.
But trends don’t last forever, including falling interest rates.
Our July 2020 Global Market Perspective warned:
For century bonds, the duration risk is so high that even a tiny upward blip in interest rates can send the bond price tumbling. So far, investors have ignored the mounting risk.
By March 2021, our Global Market Perspective provided an update with this chart and commentary:
Austria’s century bond began trading at an 8% premium in July 2020 and, by December, quickly shot up 40% above par value. Prices reversed on December 11, fell gradually in January 2021, and then plunged in February. The bond actually dipped back below par on February 25, an attention-getting 31% decline in less than three months.
As May 2022 rolled around, our Global Market Perspective gave another update with this chart and commentary:
Yields did not fall as the experts expected, they bottomed and have since quintupled. Meanwhile, the duration risk about which the Global Market Perspective has long warned turned the purported good news for investors into one of the worst bond market routs in history. Austria’s 0.85% bond due 2120 tumbled below 60 on April 19, representing a 61% drop from its December 2020 all-time high.
Since then, losses have mounted. Here’s a July 10, 2023 quote from Bloomberg:
There is no escaping the brutal reality that many European investment and pension funds have taken an absolute hammering.
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Financial Market Analysis: Which Method Do You Use?
EWI’s chief market analyst has described our approach to market analysis this way:
“At EWI, we follow all legitimate wave counts for any given market in multiple time frames.”
See for yourself what EWI is saying right now to Global Market Perspective subscribers, about the risks and opportunities we see in dozens of financial market charts.
Remember, the Elliott wave method anticipates price moves. (Yes, that means before they happen.)
