Alphabet Inc.’s Century Bonds, which mature in 2126, attracted heavy demand from pension funds and hedge funds.
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Google’s parent company Alphabet made headlines in February when it issued a 100-year bond.
Yes, it’s a bond with a repayment date 100 years from now.
Given that most of us won’t live long enough to see our investments repaid, it’s hard to imagine many investors lining up to buy Century Bonds.
“When these bonds expire, you and I won’t be here,” said Jason Moser, senior investment analyst at The Motley Fool.
However, Alphabet has telegraphed to the investment community that it expects to issue 100-year bonds in 2126. And so did the institutional investors, pension funds, and hedge funds that bought it.
The tech giant attracted bids worth nearly 10 times the bond price, totaling about $1.4 billion, according to Bloomberg. The 100-year bond was part of a massive offering that raised nearly $32 billion in 24 hours.
Armchair American investors couldn’t buy Google’s Century Bonds even if they wanted to. These were issued in the UK with a minimum face value of GBP 100,000 and were accompanied by a prospectus prohibiting sale to retail investors.
Alphabet is borrowing money to fuel its massive AI investment, despite having more than $400 billion in annual revenue. In February, the company announced that it plans to spend more than $175 billion in AI capital investment in 2026.
Here’s why Alphabet sells 100-year bonds
For Alphabet Inc., which has a market capitalization of $3.8 trillion, issuing $1 billion in bonds is like small change. But analysts say Century Bonds have symbolic value.
“I think Google is saying, ‘We can issue a 100-year bond,’ and not every company can do that,” said Lawrence Gillum, chief fixed income strategist at LPL Financial.
The bond of the century speaks to Alphabet’s confidence in a rapidly changing technology industry that has seen the downfall of many powerful companies, from Xerox to BlackBerry to Motorola.
“They’re making a statement and saying, ‘Hey, listen, we’re going to be here 100 years from now,'” Moser said. “As a Google shareholder myself, I find this a confidence booster.”
Of course, even if you muster up the courage to issue a 100-year bond, there is no guarantee that you will still be alive 100 years from now.
Century bonds are rare among American companies, but even rarer in the high-tech industry. According to Reuters, the last 100-year bond in the tech industry was issued by Motorola in 1997. Motorola, a pioneer in cell phones and pagers, fell into obscurity with the rise of smartphones.
Motorola is still in business and continues to pay interest to 100-year bondholders. But its decline poses a warning.
IBM issued a 100-year bond in 1996. Over the next few years, the computer giant lost market share and eventually exited the PC business.
These century bondholders are doing better than other bondholders.
Since 1990, U.S. publicly traded companies have issued at least 38 Century Bonds. “Only 17 of those companies are still standing,” said Caleb Silver, editor-in-chief of Investopedia.
Why would anyone buy 100-year bonds?
Why would insurance companies and pension funds buy 100-year bonds? Why do we do that?
One reason for this is that Century Bond yields tend to be unusually high. According to Reuters, the interest rate on Alphabet’s 100-year bond is 6.125%. This compares favorably with current yields on 10-, 20-, and 30-year U.S. Treasury bonds, which range from 4% to 5%.
“A lot of companies have been issuing 100-year bonds over the last 40 years, and investors want them because the yields are so high,” Silver said.
Hedge funds and pension funds buy 100-year bonds to provide a stable long-term income stream to balance long-term debt already on their books.
“The demand is there,” Silver said. “It sounds unusual, but it’s actually not that rare.”
It would be great if Alphabet still existed as a company in 2126. But Century Bondholders aren’t necessarily expecting that.
“If you’re a pension fund or an insurance company, you can be pretty confident that Alphabet will be around 10 years from now, and that’s good enough,” said John Canavan, principal analyst at Oxford Economics.
Analysts said that if bondholders become concerned about Alphabet’s future, they could find buyers on the secondary market, perhaps at a discount.
“Someone will still buy it,” Canavan said. “I’m not going to leave empty-handed.”
In the worst-case scenario, if Alphabet were to fail, 100-year bond holders would likely get at least some of their money back in bankruptcy court, Gillum said.
“There will be some protection, but it’s likely you won’t get 100 cents on the dollar,” he said.
