100-Year Bonds? Rate Pigs Have Finally Lost It

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Slap In The Face Award


Here’s a big slap for the rate pigs out there.

What’s a “rate pig”? It’s someone who looks at only the yield on a dividend stock or bond and ignores all the fundamentals and red flags. They’re looking at only the income.

And a recent bond offering by Argentina might be the perfect trap for rate pigs.

It’s a bond, issued by the Argentine government, with a 100-year maturity.

Let me repeat that… It will take 100 years to get your principal back.

Now, I know most people don’t understand how maturity affects the market price of a bond. But, suffice to say, the longer the maturity, the greater the price fluctuation when rates move up.

If rates move up, and just about everyone knows that they have to since we’ve been near zero for almost 10 years, bond prices have to drop.

A 30-year Treasury bond could see as much as a 30% drop in market value.

How much a 100-year maturity bond could drop is anyone’s guess.

That means that if you need to get out of the bond – and over 100 years, I guarantee you will – you could take a 30%, 50% or higher loss if you have to sell.

Of course, you can argue that this bond has an 8% coupon, which is unheard of today. And you could argue that all you have to do is wait it out (or at least your heirs can wait it out – you and I will be long gone in 2117) to get the principal back.

You could also argue that the breakeven point is around 10 years and four months. That’s when you have collected enough interest to equal what the bond cost you.

But that’s just breaking even. It’s had your money for more than 10 years! When was the last time you held anything for 10 years?!

And Argentina has defaulted on its debt seven times in its history. The most recent default was in 2001, and it has been in default since then.


Can you believe anyone would bet on that government for the next 100 years?

Where do these rate pigs expect the Argentines to come up with 8% per year in a world paying 2% and 3%?!

As stupid as this deal sounds, folks are standing in line to buy this dog. You heard me right… standing in line.

Maybe I’m in the wrong business. Maybe I should be out there making bond offers as ridiculous as this one. There seems to be an endless supply of folks who want to give their money away to anyone who claims there will be big return numbers.

How stupid can you get?!

Be careful out there. It seems like I see another new, dumb investment idea every day.

A 100-year maturity from, of all places, Argentina?! You have got to be kidding me!

Good investing,