Here’s a lesson in inflation. The WSJ has an interesting story on bonds that are perpetual. They will pay interest forever as long the issuer doesn’t default. While that sounds nice, the problem is inflation will eventually eats your income away. Remember your grand-parent’s stories about how far they could go on with $1? That same dollar today lost its purchasing power. That’s inflation. It’s also a reminder that some debts never really die.
Reposted from The Wall-Street Journal
By Christopher Whittall and Georgi Kantchev
The French government has owed Marie Verrier’s family money for a long time. Almost 300 years.
All Ms. Verrier and her husband, Jean, have to do to claim the world’s oldest government debt is prove they are the descendants of an obscure 18th-century lawyer.
The question is whether it’s worth the effort: Three centuries of inflation and shifting currencies mean this debt yields just €1.20 a year, the modern-day equivalent of the long-defunct livres the bond was issued in.
“That [yield] would allow you to buy a baguette of bread once a year,” said the 81-year-old Mr. Verrier from the couple’s home in the Parisian suburb of Asnières-sur-Seine.
Bonds that never mature, or do so after a century or longer, aren’t just museum pieces. The ultralow interest rates of the last decade have encouraged governments and corporations to borrow for increasingly long periods, with some even selling 100-year bonds now.
Argentina, Mexico, Oxford University and the Wellcome Trust, one of Britain’s largest charities, have been among the issuers bonds that will mature in a century. Countries including Japan and Germany have issued so-called perpetual bonds, which never mature. Continue reading “The Bond That’s Still Paying Interest, 280 Years Later”