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Long duration bonds: Century bond flurry signals US market top

Corporate issuers bring volumes to $1.5 billion; End of the long-duration trade?

The appearance of two rare 100-year corporate bonds within 10 days of each other in May suggested that the rush to extend duration before the end of QE2 and the summer slowdown had already peaked. "Will US corporate borrowers be able to go long duration a year from now?" asks Justin D’Ercole, head of investment-grade debt syndicate, Americas, at Barclays Capital in New York. "Probably not. The signs are that we are at the end of a bull market that started in the early 1990s."

The two deals came from both ends of the investment-grade spectrum: triple-A rated Massachusetts Institute of Technology and triple-B rated US railroad operator Norfolk Southern. MIT issued a $750 million, 100-year bond paying a 5.6% fixed-rate coupon, equivalent to a yield of 130 basis points over the 30-year US Treasury bond. The science and technology-focused university, founded in 1861, said that it intended to use the proceeds to fund its campus development programme as well as academic and research capital projects.

"MIT views this offering as locking in a historically low cost of capital for a very long period of time, while at the same time providing an effective hedge against inflation," the borrower said in a statement on its website.