When a Bond Gives Equity Like Returns…

Oxford University is planning to increase the size of their 100-year bond issuance.

The Financial Times reported that the university successfully raised 750 million pounds in 2017. This was a period where rates are low and they were able to issue at an interest rate of 2.54%.

This issuance may be priced close to 2.65% and is unsecured. This means that in the case of default, the borrowers will have no recourse over Oxford University’s assets.

There are some institutions that are in a unique situation. They can be likened to our Keppel or ST Telemedia. While they may not be a government organization, their strategic importance gives investors the impression that in case anything, someone would bail them out.

Oxford University happens to be in such a position.

What captured my attention was a crazy price chart of an Austrian 3.5 billion 100-year bond issue. This Austrian bond was issued at a yield closer to 2.3% a year. This is a pretty low rate already.

The bond trades closer to a prevailing yield of 1.1%. The price chart is so beautiful.

For those who think 2.3% is overvalued and madness, they probably missed out on a 60% gain in capital value (I take it the bond was issued at par of 100)

Different bonds are sensitive to the movement of the market interest rate. A rough way to measure how much they would move will be their maturity period.

A bond with 5-year duration will swing around 5% if interest rate swings 1%. A 10-year will swing around 10%. The relationship is not always equal. As the maturity increases the relationship should be more concave, meaning a 20-year bond will swing around 20% but likely less (15-20% range).

So a 100-year bond will have…… some crazy swing. This may make a great trading instrument without leverage lol.

I do wonder in what right mind would I invest in a 98-year bond at a 1.1% yield. It will take like near a century for my family to earn back the money!

I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.

My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.

To find out more visit Interactive Brokers today.

Join the Investment Moats Telegram channel here. I will share the materials, research, investment data, deals that I come across that enable me to run Investment Moats.

Do Like Me on Facebook. I share some tidbits that are not on the blog post there often. You can also choose to subscribe to my content via the email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I used to work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works
8. Havend – Where I currently work. We wish to deliver commission-based insurance advice in a better way.