In Mid-November, a U.S. industrials made a unique bet on the future of long-term interest rates. Corning, New York-based Corning Incorporated (NYSE:GLW) has a 168-year history as an innovator in materials sciences. The company made the first glass bulbs for Thomas Edison's electric light, and today make the cover glass for your smartphone. Given the company's long and successful operating history, it may come as little surprise that the company recently made a very long-term bet on the future of U.S. interest rates. I believe that evaluating the implications of this bet has important takeaways for Seeking Alpha readers.
The longest outstanding U.S. Treasury debt matures in November 2049. The new long-dated Corning debt matures thirty years later in November 2079. Because the U.S. does not currently issue ultra-long bonds, there is not a well-defined pricing curve for bond maturing beyond thirty years. Corning issued its 60-year debt at a spread of 3.15% over the yield on the 30-year Treasury. On the same day as this 60-year bond issuance, Corning also issued 30-year bonds with a spread of 1.60% over the 30-year Treasury.
The company issued $400 million of 30-year bonds, and a much larger $1.1 billion of 60-year bonds. The interesting part of this bond deal is that it lets us price the company's assumption on its forward borrowing costs. The company must be assuming that borrowing for 60 years today is cheaper than borrowing for an additional 30 years when their 30-year bond matures. This exercise lets us imply what the company believes their 30-year financing cost might be 30 years forward.
The 60-year bond was issued with a yield-to-maturity of 5.47%. The 30-year bond was issued with a yield-to-maturity of 3.92%. To determine the 30-year forward financing cost that would make the company indifferent between a 60-year issued today
