Austrian government issues 70-year bond

Austria has now joined the growing list of countries that are issuing extra long bonds.

The European nation, “with its Johann Strauss music, glamor and easy charm,” has issued a bond that will, indeed, last a lifetime. Austria announced last week that it will issue a bond that will come with a 70-year maturity.

That’s right. Austria will now have a two-billion-euro 70-year bond. Despite a yield of just 1.5 percent, investors jumped all over the Austrian sale. The appetite for this 70-year bond was fierce.

Of course, Austria isn’t the only government to embrace bonds with ultra-long maturities. Earlier this year, the Italian, French and Spanish governments proceeded to sell 50-year bonds. Belgium and Ireland attempted to outdo those countries by beginning to sell 100-year bonds.

Outside of Europe, Japan is also following this trend by selling 50-year bonds (SEE: Japan may follow France, Spain with issuance of 50-year bonds).

The reason why countries are adopting this policy is so that they can take advantage of record-low interest rates when they offload their debt. Even with low yields, investors find these types of investment vehicles attractive because of the immense volatility elsewhere around the financial markets.

So, what would legendary free market economist Ludwig von Mises say about all of this? As the great Joseph Salerno of the Mises Institute alluded to in a recent column:

“[W]hen governments initiated their policies of long-term irredeemable and perpetual loans . . . [t]he state . . . this eternal and superhuman institution beyond the reach of earthly frailties, offered to the citizen an opportunity to put his wealth in safety and to enjoy a stable income secure against all vicissitudes. It opened a way to free the individual from the necessity of risking and acquiring his wealth and his income anew each day in the capitalist market. He who invested his funds in bonds issued by the government and its subdivisions was no longer subject to the inescapable laws of the market and to the sovereignty of the consumers. . . . He was secure, he was safeguarded against the dangers of the competitive market in which losses are the penalty of inefficiency; the eternal state had taken him under its wing and guaranteed him the undisturbed enjoyment of his funds. Henceforth his income no longer stemmed from the process of supplying the wants of the consumers in the best possible way, but from the taxes levied by the state’s apparatus of compulsion and coercion. He was no longer a servant of his fellow citizens, subject to their sovereignty; he was a partner of the government which ruled the people and exacted tribute from them.”

As Salerno avers: “the issue of government bonds is actually more insidious and destructive of the market economy than the issue of fiat money.”

Austria did return to some modesty by offering a seven-year maturity bond, but investors will be given a negative yield of negative 0.191 percent.

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