Thursday 31 March 2016

How do you think about a 100-year bond?

If a country issues a bond which has a maturity of 100 years, is there any one buying such bond? Firstly, a 100-year bond does exist that Mexico has issued 100-year bonds at 4.2 per cent. Secondly, usually we consider a 10-year bond is risk free, especially the US 10-year bond and the UK 10-year gilt. However, the risk increases over the time extension. Therefore, the 100-year bond could not be considered as a risk free asset. The problems about currency, inflation and sovereign will magnify. Then what kind of people will have the motivation to buy such a bond? People who believe the world economy will be in its decline over the following 100 years will have the motivation to buy such a bond. However, there are so many uncertainties that could make a 100-year bond default if the economy is in its decline. Overall, I do not think a 100-year bond is a good way to avoid future risks.

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