Sometimes a company or a government issues bonds that never mature. They are called perpetual bond, and as the name suggests, they remain in force for as long as the issuer wishes to. This allows the bond holder to reap benefits for long periods.
While perpetual bonds sound like great long-term investment instruments, they are not. The only party that benefits from this kind of an arrangement is the bond issuer, because it allows them to raise money without ever needing to pay it back since these bonds never mature. The investor gets a yearly payout according to an interest rate defined by the issuer, which can change at any time and is usually kept low enough for the company to make a profit. And once inflation is factored into the equation, the value of the yearly payout starts diminishing the longer the investor holds on to the bond.
This 370-years-old bond is still paying interest.
What makes a perpetual bond appealing is that they are transferable. The company will not buy them back, but the investor can sell it on the market and somebody else will start earning the interest. Some perpetual bonds have been bought and sold countless number of times across generations spanning centuries.
One of the most famous perpetual bonds was the British Consols, first issued in 1751. They were traded for more than two hundred fifty years until they were fully redeemed in 2015—that is, the British government bought the bonds back and fully paid back the investors.
But there are some bonds issued way back in the 17th century that are still paying out interest. These bonds were issued by Hoogheemraadschap Lekdijk Bovendams, a Dutch water board responsible for managing dikes and canals in the lower Rhine region in the Netherlands. In 1648, the water board floated a perpetual bond to raise money for the construction of a series of piers to regulate the flow of a river and prevent erosion.
The bonds were priced at 1,000 guilder each, which is worth about $500 in today’s price, and had a perpetual interest rate of 5%. The rate was later reduced to 3.5% and then 2.5% during the 17th century itself.
For the last four centuries the bond crossed many hands and oceans until it was bought by the Yale University at an auction in 2003 for roughly $27,000. At first, Yale didn’t know what to do with it. Unlike many archival documents in Yale’s collections, which are valuable only as historical artifacts, this Dutch bond was still a live document. Should they archive it? Should they cash it?
The bond is made not of paper but goatskin, and interest payments were recorded directly on the bond. By 1944, when the goatskin had run out of space, a paper addendum was added to record new payments.
The paper addendum to the original bond.
Timothy Young, who curates modern books and literature at the Beinecke Rare Book and Manuscript Library tracked down the Dutch Water Authority, Hoogheemraadschap De Stichtse Rijnlanden, which inherited the debt of the previous water authority which first issued the document, and wrote to them asking whether they still honor the bond. “Indeed we do,” they replied.
In 2015, Young flew to Amsterdam to collect 12 years of interest on the bond, amounting to a whooping 136 euros. This was necessary to keep the bond alive.
“If we walk away and it’s never redeemed, it might as well be a dead bond,” Young explained.
The water authority told Young that the bond is one of five that is known to exist.
“There have been many instances in history when institutions issued debt with very long tenure. In the 17th century, people sometimes issued perpetual debt. But it is very rare that there is an uninterrupted history when governments or other entities have not defaulted on those debts,” says Geert Rouwenhorst, a professor at the International Center for Finance, and the bond’s previous owner. “Yale’s bond is an extremely early example of a security that was issued without maturity and still pays interest. One ought to be astounded that such a thing exists.”
Professor Rouwenhorst himself collected 26 years worth of interest from the bond’s possession.
