During the frenzy for yield in mid-2015, over €3 trillion worth of European bonds were trading at negative yields, according to data from Bank of America Corp. Most major global 10y bond yields were trading at record low yields with investors factoring in a severe deflationary environment and central banks still buying large portfolios of bonds.
As a borrower, it was a great time to tap the market for cash. The longer the better. Petrobas, the Brazilian state-controlled oil company, was one company that took advantage of the demand for long term yield to sell US$2.5bn of 100 year bonds. 100 years – the bonds mature in 2115! There aren’t a lot of companies with a 100 year history and the concept of lending money to an oil company for 100 years seems quite absurd.
But lend the market did. The demand for the issue was said to be around US$13bn for the 8.45% yield on offer. Perhaps the sweetener of Petrobras selling the bonds at around 81 cents in the dollar was too great a temptation and enough to gloss over the fact that the company was dealing with the fallout from a corruption scandal that has resulted in management changes and delays in earnings reports. As a comparison, 30 year US Treasury’s were trading at around 2.95% at the time.
