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When Austria sold a €3.5bn 100-year bond two years ago at a yield of just 2.1%, a few eyebrows were raised. Today, buyers who had handed over cash in that sale could be forgiven for feeling a bit smug.

The bond is among the best performing assets in the world this year, notching up a total return of nearly 66% since the end of 2018. Nearly half of the gains have come since June, when Vienna raised a further €1bn in a follow-up sale of the same bond at an even stingier yield of 1.2%.

Debt markets around the world have rallied in 2019. However, it is longer-dated bonds that have been the outstanding performers. That is a function of their high duration — a measure of the sensitivity of bond prices to moves in interest rates. For ultra-long bonds, even a small dip in yields means massive price gains that dwarf income from coupon payments.

German 30-year bonds, which have recently seen their yields turn negative, have returned 28% this year. Holders of UK 50-year bonds are sitting on a 22% gain.

Not all countries issue ultra-long-dated debt. The longest bonds sold by the US and Germany are their 30-year benchmarks. Within the eurozone, Austria, Belgium, France, Ireland, Italy and Spain have all in the past five years capitalized on investors’ thirst for yield by selling bonds maturing in more than three decades.

Generally, demand for these bonds is dominated by pension funds and insurers that need long-dated assets to match their long-dated liabilities — and are typically less concerned with yield levels than other investors.

But Austria’s century bond was an exception, with asset managers accounting for nearly two-thirds of orders, suggesting that many buyers were using the bond to take an outsize bet on lower rates.

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