100 year bonds

Argentina announced that they will be issuing a 100 year bond yielding almost 8%. This is not the first country to do this as Spain, Ireland, and Portugal have also made similar announcements. I'm assuming they will be successful however the credit quality of Argentina is a little bit less than that of EU countries. The main point of this article and the reason I'm bringing it up is that the idea behind 100 year term bond at 8% suggest that these investors assume there's a future chance for deflation rather than inflation. If there's inflation all they have to do is wait for the FED to continue to raise rates along with the natural rise of global interest rates to collect on higher rates in the future. The fact that these investors are locking in at 8% for 100 years suggests that they might be thinking this is the best deal they've got going forward.

 

All right. So what does this have to do with you? Cash flows are becoming increasingly tight, as we all know. This has to do with the variety of factors, some of which could be price increases across some areas such as food. Energy, however, is not one of them, as oil prices continue to drop. But, if these 100 year bond investors are correct that there is no future inflation, then what we could see in the future is stability in our expenses or even a decline. But this also may impact wages as well as nothing can escape deflationary pressure. Equities tend not to do well with declining wages, or a deflationary period. If you’re invested mostly in equities I would take the time to consider improving your diversification.  Work with your financial advisor to stress test your portfolio for a deflationary environment and learn for yourself what the impact could be.

 

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Eureka Wealth Management is a registered investment adviser in the State of California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.