Alphabet’s 100-year bond falls below 90 pence for the first time, and it’s a lesson in duration risk

When Alphabet sold a 100-year bond back in February, investors were practically tripping over each other to get a piece. The order book hit roughly 10x oversubscription. Now, just months later, that same bond is trading below 90 pence on the pound for the first time. What happened to the bond Alphabet issued a £1 billion sterling-denominated bond in early February with a 6.125% coupon and a maturity date somewhere around 2126. It was part of a much larger multi-currency debt offering estimated between $20 billion and $32 billion. The century bond specifically was priced at a spread of 120 basis points over 10-year gilts, which at the time reflected strong market confidence in Google’s parent company. The buyers were exactly who you’d expect for this kind of paper: pension funds and insurers. These are institutions that need to match ultra-long-duration liabilities, like pension obligations stretching out decades, with correspondingly long-duration assets. The decline below 90 pence means that anyone who bought at par has already lost more than 10% of their principal value. Why Alphabet needed the money The timing of this massive debt issuance wasn’t random. Alphabet has been telegr...