The Tyrolean Ramparts
22 March 2022
At Monocle, it has been several months that our fixed income pocket is mostly made up of very short term government bonds. Who says short maturity says low yield, so why this choice?
Answer in 1 picture :
Let's say you invested 100,000€ in December 2020 in this Austrian debt. Strong country of the European Union, economic resilience and the mountains of Tyrol as a bulwark: Austria is solid.
Today, you have lost 55,000€. And Austria has nothing to do with it.
The story in detail?
In June 2020, Austria issued a loan repayable in June 2120. 100 years maturity.
100 years is a long time. So in return, this debt brought you 0.9% per year. Enough to attract 18 billion euros of suitors (Austria was only asking for 2 billion).
If interest rates go up, your debt loses a lot of value, since you are stuck for 100 years with a lower rate than the others.
The central banks are starting a series of rate hikes, which is why we prefer not to play with long debt at the moment.
Have a great week,
Pierre
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