Following the sustained fall in global bond yields, Austria recently tapped its 2117 bond for another €1.25bn.
Originally issued two years ago with a coupon of 2.10 per cent, it now yields below 1.2 per cent – hardly generous, yet considerably more appealing than the negative yield on the five-year notes issued at the same time.
Austria has been the innovator in long-term debt issues but other EU countries have also issued ‘century bonds’, albeit in private placements.
Other organisations have also issued them, such as the University of Oxford and the Wellcome Trust.
So why hasn’t the UK taken advantage of the ultra-low-yield environment?
No UK government or agency, in our long history of government debt finance, has been given the chance to raise long-term debt at such low rates.
Opportunities like this do not come around often and this one is very stark.
Put bluntly, if the UK government cannot earn a better return than 1.5 per cent on its spending over the longer term, it is not doing its job well.
Just think of the great infrastructure projects, health investment and educational advancements that could be supported – to say nothing about starting to address unfunded public sector pensions.
Perhaps the explanation is lack of demand from pension funds, which have no need to match liabilities out to 2119.
And there is no significant duration benefit in buying 100-year gilts, rather than their 50-year equivalents.
Yet the same reasoning must apply to Austria, albeit the positive yield of its 2117 bond is obviously more attractive than negative short rates.
The UK Debt Management Office is an executive agency of the Treasury.
Part of its remit is the obligation to minimise financing costs for the UK taxpayer over the long term, taking account of risk.
In a world of low interest rates, ultra-long-dated UK government debt would find a ready market from both active and passive investors.
You might imagine that the Treasury would be capable of similar long-term planning to Austria, Oxford University and the Wellcome Trust; however, in practice, it seems that its time horizons are more aligned with shorter-term government spending policies.
This is a real challenge: the focus seems to be on managing for the short term without standing back and thinking of the fantastic opportunity available.
One of the criticisms in relation to the North Sea oil bonanza was that the UK did not take the opportunity to set up a wealth fund that could have generated massive benefits for the country over the past 40 years.
Today, is anyone asking: why not issue long-term debt and create such a vehicle?
There may be sound reasons not to do this – but let’s have a debate and not be confined to the same old way of thinking.