MIT: The Massachusetts Institute of Technology has tapped in to the deal of the century. The $750 million sale of 100-year debt follows recent long-dated deals from Mexico and Goldman Sachs. If anything, it's surprising the Boston whiz-kid factory took so long to capitalize on a market willing to lend into the 22nd century, when interest rates and inflation are bound to rise much sooner. After all, the school’s most famous current alum, Ben Bernanke, made it all possible.
It didn’t take a summa cum laude in applied mathematics to spot the opportunity. MIT is paying a coupon of just 5.6 per cent, or a mere 1.3 percentage points over Uncle Sam’s 30-year debt. To put it in perspective, AT&T pays only 1.4 percentage points over Treasuries to borrow for three decades. The American telephone icon is a greater credit risk, and investors may take comfort that MIT has been around for nearly 150 years. Of course, so was Lehman Brothers.
It's naïve to assume any entity can maintain a AAA rating for a century. Berkshire Hathaway and General Electric once looked untouchable. And the yield MIT is paying won't do much to help natural long-term buyers like pension funds meet their unrealistic return targets anyway.
The California Public Employees’ Retirement System, for example, has to earn at least 7.75 per cent on its investments to meet its funding needs.
Century bonds are inherently a big gamble. It's true that an educational institution of MIT’s caliber may be less likely to default than, say, a Latin American nation, and have better staying power than an investment bank. Britain's Cambridge University has lasted 800 years. But persistently low interest rates, a paucity of AAA-rated bonds and an open-spigot monetary policy are still warping risk calculations. MIT's ivory tower, however, seems to be taking its cues from the engineers who populate Wall Street. It would be madness not to capitalize on such well greased markets by locking in what could be once-in-a-century interest rates.