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US long bonds: Century bonds are back

Low yields drive issuance; Several more to come say syndicates

After a flurry of deals with 100-year tenors in the 1990s following their introduction, the century bond, it seems, is back. At the end of August, US railroad Norfolk Southern reopened its 100-year 2105 bond, raising $250 million, and in the middle of September Rabobank debuted with $350 million of 100-year bonds.

With just weeks between the two issues, rumours that more borrowers might look to go beyond the traditional 30-year maturity have been spurred.

The century bond was first introduced in the 1990s, when there were more than 60 US issues. Since 2005, however, when Norfolk Southern launched its $300 million 2015 bond, appetite for 100-year debt from issuers and investors has been subdued.

Desperate for yield

Not anymore, say syndicate officials. Investors are desperate for yield. "Treasury yields are near all-time lows, and investment-grade credit is trading very tight compared with one or two years ago," says David DiNanno, managing director in debt capital markets for Credit Suisse. "Most investment-grade names were offering about 8% for 10-year bonds back at the end of 2008/beginning of 2009. Spreads over treasuries were around 500 basis points at the peak of the crisis. But now with the rapid rally in spreads and with interest rates coming down, most investment-grade names trade inside of 4% for 10-year maturities.

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