- The issuer does not have to repay the principal raised, but only needs to fund the interest costs. This means that massive sums of money could be obtained at minimal fiscal cost given current depressed interest rates. A sovereign issuer of good standing like the EU should be able to pull this trick off.
- A perpetual bond can be drip-fed in instalments as part of a single issue, rather than issuing multiple tranches of finite bonds at potentially different interest rates and with the eventual burden of principal repayment or refinanced rollover.
- The European Central Bank (ECB) could buy the EU perpetual bonds as part of its COVID-19 bond purchase programme without needing to rebalance a portfolio of bonds that have no expiry date.
Michael Coote is a freelance writer and financial journalist based in Auckland.