Could Austria Be on Its Way Back to AAA? Known for its ultra-long 2120 and 2117 bonds, Austria also offers compelling opportunities with more conventional issues
The list of AAA-rated government bonds continues to dwindle. However, it can be supplemented by a selection of countries that, while slightly less accredited, were part of the AAA elite until just a few years ago.
Among these, Austria stands out prominently. Currently rated AA+ following an S&P downgrade in 2012 amid the European sovereign debt crisis, Austria’s demotion was not due to domestic economic weaknesses but rather to fears of contagion from Italy’s precarious financial situation at the time.
Prospects for an AAA Rating, Unique Opportunities in Two Atypical Bonds
Recently, discussions of Austria regaining its AAA rating have gained momentum. During the summer of 2024, some analysts predicted a medium-term return to AAA status, albeit within a context marked by political instability and renewed volatility in gas prices. While an immediate upgrade is unlikely, S&P’s assignment of a positive outlook is a clear step in that direction.
Austria features prominently in many Italian portfolios, particularly through two distinctive government bonds:
Matusalemme Euro 2120 and 2117: These ultra-long-term bonds attract investors betting on sharp price rebounds in the event of further ECB rate cuts.
With modest coupons of 0.85% and 2.1%, they are primarily instruments for trading rather than income generation.
Currently priced at 40 EUR and 71.5 EUR, respectively, they present notable medium-term upside potential.
However, their speculative nature makes them less appealing to risk-averse investors
Traditional Alternatives for Conservative Investors
For those seeking more conventional government bonds, Austria offers options better suited to conservative savers:
Austria 3.15% Gn2044 EUR
- ISIN: AT0000A0VRQ6
- Denomination: 1,000 EUR – Annual coupon
Quoted at 97-98 EUR, this bond appeals to low-risk investors focused on steady returns.
Despite trading below its December peak of 106 EUR, it boasts solid liquidity with a bid-ask spread as low as 20 bps during active trading periods.
Austria 3.15% Ot2053 EUR
- ISIN: AT0000A33SK7
- Denomination: 1,000 EUR – Annual coupon
Priced around 96.5 EUR, this bond offers slightly better value, with a wider bid-ask spread of 25 bps.
Its longer duration of 18.6 (versus 14.1 for the 2044 bond) enhances its sensitivity to rate changes, potentially offering greater upside in price movements.
The High-Yield Option: 6.25% Bond
Lastly, one of Austria’s standout offerings is a legacy high-yield bond issued in 1997:
Austria 6.25% Lg2027 EUR
- ISIN: AT0000383864
- Denomination: 1,000 EUR – Annual coupon
Nearing maturity and priced at 109 EUR, this bond is ideal for investors seeking a high coupon while also realizing tax losses, as it will be redeemed at par (100 EUR) in 2027.
Despite its modest gross yield of 2.4%, it continues to attract institutional investors due to its unique profile.
Original article published on Money.it Italy 2025-01-13 10:35:14. Original title: Bond oggi – Puntare sulle opportunità degli AA+. Il caso dell’Austria
