• Willow Oak Advisory

A Bond Up 65% In 2019

Aktualisiert: 23. Aug 2019

From Seeking Alpha Source


  • An AA+ rated Austrian century bond has returned 65% in 2019, better than 99% of the S&P 500 components.

  • This article uses the tremendous performance of this bond to discuss the concepts of duration and convexity.

  • Rate duration and positive convexity can be important contributors to portfolios in times of market uncertainty.

One of the most interesting stories in capital markets in 2019 is the performance of a government bond from Austria. With a population of 8.7 million people, Austria would be the 12th largest U.S. state, nestled between New Jersey and Virginia population-wise. Why is the performance of a government bond from that sovereign so important to global capital markets?

On September 12th, 2017, the Austrian government issued a century bond with a 2.1% coupon maturing in 2117. Some bond market participants hailed it as a great victory for the Austrian government. They locked in what was viewed as low cost funding for the next 100 years. For context, at the time of the issuance it had been just 103 years since the assassination of Archduke Franz Ferdinand of Austria-Hungary had spurred the outbreak of World War I. A century is a long time in the history of a country, and the Treasury of Austria was believed to be appropriately forward thinking.

In 2019, the issuance of that century debt is already looking like an expensive mistake. On August 7th, 2019 - less than two years after the bond was issued - the bond was trading at 191% of par. The bond was priced at 116.5% of par to start the year. At 191% of par, it has had unrealized capital appreciation of 64%. Add in the just over 1% coupon return through the point in the year, and the bond had returned a whopping 65%. The Austrian government could lock in a century of financing for less than half the cost today.

Read Full Article

63/66 Hatton Garden

Fifth Floor, Suite 23



United Kingdom

+44 (0) 203 633 6961

  • LinkedIn - White Circle
  • Twitter - White Circle
  • Facebook - White Circle

​This website should not be regarded as an offer or solicitation to conduct investment business. Past performance of investments is not necessarily indicative of future performance. The value of investments may fall as well as rise and the income from investments may fluctuate and is not guaranteed. Clients may not recover the amount invested. The investments mentioned on this website are not suitable for all types of investors. Investment advice should always be sought from a qualified investment adviser before any investment is made.

Trading and investing can be a challenging and potentially profitable opportunity for investors. However, before deciding to participate in the market, you should carefully consider your investment objectives, level of experience, and risk appetite. Most importantly, do not invest money you cannot afford to lose.

There is considerable exposure to risk in any investment transaction. Any transaction involving securities involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. Investments in speculation may also be susceptible to sharp rises and falls as the relevant market values fluctuate. The leveraged possibility of trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. Not only may investors get back less than they invested, but in the case of higher risk strategies, investors may lose the entirety of their investment. It is for this reason that when speculating in markets it is advisable to use only risk capital.

© Copyright 2021 Willow Oak Advisory. All Rights Reserved