Institutions that sold century bonds, such as the University of Virginia, could be the bond market’s best success stories.
A spike in interest rates invariably produces high-profile busts in the bond market—bank blowups from last spring being Exhibit A. But have there been any bond success stories in the upcycle?
Remember, there’s always someone on the other side of the trade. Take your annoying neighbor who brags about how she snagged a 30-year fixed-rate mortgage at 2.65% in early 2021—and keeps reminding you that’s an all-time low, going back to April 1971, when St. Louis Fed data begins.She deserves to gloat.
Century bonds, with their 100-year maturities, can make sense for institutions with long time horizons. The first in the modern era appears to have come from the corporate side in 1993, when Walt Disney sold $300 million of “Sleeping Beauties,” as one wag named them, paying 7.55%. Newsletter Sign-up Yale was the first university in the pool, selling $125 million worth with a coupon of 7.375% in 1996, which maybe isn’t surprising since David Swensen, the university’s endowment visionary, was running things for the Eli’s then. The next wave arrived in 2011, when the Massachusetts Institute of Technology sold $750 million of bonds at 5.6%.
“There are about 15 to 20 schools with century bonds,” says Jessica Wood, senior director and sector lead for education at S&P Global. “The majority tend to be higher rated. Locking in an interest rate for 100 years can be a positive. On the flip side, many university management teams tell us they would never issue a century bond, because that’s putting into place a potential problem for a future management team to deal with.
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