Austria’s 100-year government bond, the Österreich-Anleihe maturing in 2117, promises a 3.7% annual yield. For investors burned by years of negative interest rates, this looks like a safe harbor. But beneath the surface of this “set-and-forget” investment lurks a structural trap that most retail buyers won’t discover until it’s too late.
The Century Bond Phenomenon
The bond in question, ISIN AT0000A1XML2, carries a 2.1% coupon until September 20, 2117. Yes, you read that correctly: 2117. Anyone buying this today is essentially lending money to the Austrian state for three generations. The yield to maturity hovers around 3.7% because the bond currently trades below its nominal value, creating that attractive headline number.
Recent discussions among Austrian investors reveal a pattern: people see the yield, compare it to current Festgeld (fixed-term deposits) rates, and think they’ve found a bargain. The Austrian Federal Financing Agency (OeBFA) has certainly made it easy to trust the state, its recent 10-year bond issuance was oversubscribed 18.6 times, with a record-breaking €71 billion in orders. When institutional investors pile in, retail follows.
But there’s a crucial difference: those institutions aren’t planning to hold until 2117.
The 3.7% Illusion
Here’s where the math gets ugly. That 3.7% is nominal yield. After Austria’s KEST (capital gains tax) of 27.5%, you’re left with 2.68%. If inflation runs at the European Central Bank’s 2% target, your real return drops to 0.68%. And if inflation exceeds 3%, a scenario many economists consider likely over a 90-year horizon, your real return turns negative.
One investor in the community put it bluntly: “When inflation goes above 3%, there’s basically nothing left after KEST. You might as well put money in a savings account.” The problem isn’t just the tax, it’s the duration. A century bond has enormous duration risk, meaning its price swings wildly with interest rate changes. For every 1% increase in market rates, the bond’s value could drop 40-50%.
Liquidity Reality Check: The Spread Problem
Many buyers assume they can sell whenever they want. The reality is more complicated. The 2117 bond shows a bid-ask spread of 0.7%, significantly wider than the 0.12% spread on Austria’s 2053 bond. That means you instantly lose 0.7% of your investment the moment you buy.
Why the wide spread? Austrian insurance companies have locked up most of the supply in their Deckungsstock (coverage portfolio) to match long-term liabilities. As one market participant noted: “The 100-year bonds are difficult to get. They sit in Austrian insurance coverage portfolios, which creates that wide spread.” On some days, trading platforms like Tradegate show zero trades.
For a retail investor needing €10,000 for an emergency, this matters. You might face a multi-week wait for a buyer, or accept a steep discount.
The Inflation Tax Trap
Austria’s tax system creates a perverse incentive. The KEST applies to nominal gains, not real ones. If inflation runs hot, pushing the bond’s nominal yield higher, you pay tax on that “gain” even though your purchasing power shrinks.
Consider a scenario: inflation jumps to 4% for five years. Market yields rise to 6%. Your 2117 bond, locked at 2.1% coupon, plummets in value. If you’re forced to sell, you take a massive capital loss. If you hold, your 3.7% yield to maturity gets taxed away, leaving you with negative real returns.
This is why long bonds aren’t the safe haven they appear to be. As one experienced investor warned: “High inflation leaves you with nothing after KEST. Maybe you could get more interest from a savings book.”
Duration Risk for Mortals
The 2053 bond (maturing in 29 years) already stretches most human lifespans. The 2117 version is pure financial abstraction. Unless you’re planning to bequeath wealth to grandchildren you haven’t met, “hold to maturity” is a fantasy.
Yet this psychological distance creates a false sense of security. Investors think, “I’ll never need to sell, so price swings don’t matter.” But life happens. Divorce, illness, business opportunities, or simply changing your mind, all force you back into the market at the mercy of that 0.7% spread and extreme volatility.
The Konvexität (convexity) of century bonds is extreme. If rates fall back to zero, the bond could double in value. If rates rise to 5%, it could lose 60% of its value. This isn’t a stable anchor, it’s a leveraged bet on interest rates that most retail investors don’t realize they’re making.
Who’s Actually Buying These?
The Austrian bond market tells a clear story. The OeBFA’s recent 10-year bond saw demand from central banks, asset managers, insurers, and pension funds. These players have different constraints:
- Pensionskassen (pension funds) need to match 30-40 year liabilities
- Versicherer (insurers) must hold long assets against life insurance policies
- Notenbanken (central banks) hold them for reserve management
You’re competing with players who don’t mark to market daily and can hold literally forever. When they dominate ownership, liquidity dries up for everyone else.
The Behavioral Finance Angle
Why are retail investors drawn to century bonds? Three cognitive biases are at work:
- Recency bias: After years of zero rates, 3.7% looks amazing
- Authority bias: If the Austrian state issues it, it must be safe
- Mental accounting: Treating it as a “safe bucket” separate from stocks
One investor summarized this mindset: “I see it as a savings book where I collect regular interest, but never plan to withdraw.” This is exactly what insurers do, but they have billions in other assets to balance risk.
The controversy lies in mistaking a highly speculative duration bet for a conservative investment. As another market participant noted: “If you’re willing to sit it out and accept the yield, you can do it. But with the 2017 bond, sitting it out isn’t really an option.”
Better Alternatives in the Austrian Fixed-Income Space
If you want Austrian government exposure without the century bond trap, consider:
Bundesschatz (Federal Treasury) offers 3% on 10-year terms with full liquidity and no spread. You can access your money anytime without penalty. For Austrian government-backed fixed-income products, this is the retail-friendly option.
Laddered bonds: Buy bonds maturing in 10, 20, 30, 40, and 50 years. This creates a “maturity ladder” where you get principal back every decade to reinvest or spend. As one savvy investor suggested: “An alternative would be investing in various bonds maturing in 10,20,30,40,50,60,70+ years. That way you have a cushion ‘matured’ every 10 years for unexpected expenses.”
Inflation-linked bonds: Austria issues Inflationsgeschützte Anleihen (inflation-protected bonds) that adjust principal for CPI, preserving real purchasing power.
The key is matching your actual time horizon, not your theoretical lifespan. If you need the money within 30 years, a 100-year bond is speculation, not investment.
The Verdict: Smart Move or Hidden Risk?
Austria’s 2117 bond serves one purpose well: bequeathing wealth across generations with minimal management. If you’re a 40-year-old planning for grandchildren you’ve never met, and you have a 50+ year time horizon, the bond might fit.
For everyone else, it’s a hidden risk packaged as a safe haven. The combination of wide spreads, extreme duration, KEST taxation, and inflation vulnerability creates multiple paths to poor returns.
The recent surge in retail interest reflects behavioral finance at its worst: chasing yield without understanding structure. When OeBFA’s Markus Stix celebrates “the largest order book in the history of the Republic”, remember that retail investors are the smallest fish in that pond, and the ones least able to swim with the whales.
Actionable Advice
Before buying century bonds, ask yourself:
- What’s my real time horizon? If under 50 years, the 2053 bond (0.12% spread) is more rational
- Can I handle a 50% drawdown? If rates rise, this will happen
- Do I understand KEST impact? Calculate your after-tax, after-inflation return
- Why not Bundesschatz? The 3% rate offers better liquidity and no spread penalty
- Am I diversifying or rationalizing? Century bonds shouldn’t exceed 5% of a portfolio
The Austrian state will likely exist in 2117. Your need for that money, and your ability to access it fairly, is far less certain. In finance, the longest duration risk is often the one you don’t live to recover from.
Investment Disclaimer: This analysis is for informational purposes only. Century bonds involve significant risks including extreme duration, liquidity constraints, and inflation exposure. Consult a financial advisor before investing in long-duration fixed income securities.
