The long wait

The performance of Austria’s 100-year bond since issuance is a striking real-life example of what can happen when investors underestimate duration risk.

When the Austrian government issued the bond in late 2017 with a 2.5% coupon, falling yields pushed its price dramatically higher, eventually reaching 237. Today, with the yield at around 3.7%, the bond trades at just 57.85.

The lesson is straightforward: the longer the duration, the greater the sensitivity to changes in interest rates. In theory, investors may still be repaid at 100 at maturity, but in practice the waiting time can extend far beyond any realistic investment horizon.