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What is Argentina’s Century-Long Bond?

By Sera Akinci  |  20/06/2017 06:11

Argentina is preparing to borrow USD from investors for 100 years. What this means is that many countries, specifically countries in emerging markets borrow money in both their own currencies whereas the developed market currencies, they do it by issuing ‘’bonds’’ that must be paid back after a certain amount of years- in this case- 100 years.

Any country who cannot control its borrowing of a currency has the potential of failing to repay those borrowed bonds. As an alternative, the government can also print money in their own currency but this is certainly not favored by the markets and the investors as it creates more risk. Yet, Argentina’s 100 year bonds will offer investors about 8% per year in interest, which is actually more than the standard US government bond.

How might this affect the markets?

One of the most popular investment is the emerging market debt now. The fact that Argentina having trouble to pay its debt 7 times in the past 200 years have triggered investors to desire to lend money to the country. In the past years, investment has moved to emerging markets from developed markets immensely- and in response, those governments are issuing more bonds.
The table below indicates the daily flows in the iShares JP Morgan USD Emerging Markets Bond ETF and points out the record amount of money in the biggest emerging-market debt ETF- which was in the beginning of June.

 


Nonetheless, there is no US government bond that lasts more than 30 years. However, officials from the US Treasury are discussing issuing an American 100-year bond. Their suggestion has been ‘locking in’ today’s low interest rates is a good thing for America’s finances. This means that America might as well borrow for a long time given the low interest rates on offer today. There are countries like Canada who has a 50-year bond, Ireland and Mexico both with 100 year bonds (in their own currencies). It would certainly attract long-term investors in such a bond to be issued to Argentina – such as pension funds.
 
 

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