Pricing 50-year bonds

Telecom Italia’s trailblazing 50-year issue has left investors pondering how to price such a security. Ben Bennett gives his views on assessing the risk and fair-value spread


We have calculated the fair-value spread to swaps of 50-year credit by calculating the extra risk that investors take on by moving from 30-year to 50-year credit. We have broken down this extra risk into two parts: duration/convexity risk and default risk.

Duration/convexity risk

By moving from 30-year to 50-year credit, investors are holding a more volatile instrument, but not that much more volatile. When switching from 30-year to 50-year bonds, the time to maturity increases by two-thirds

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