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The bond that's still paying interest 280 years later

The Wall Street Journal. logo The Wall Street Journal. 1/4/2019 Christopher Whittall and Georgi Kantchev

The French government has owed Marie Verrier’s family money for a long time. Almost 300 years.

All Ms. Verrier and her husband, Jean, have to do to claim the world’s oldest government debt is prove they are the descendants of an obscure 18th-century lawyer.

The question is whether it’s worth the effort: Three centuries of inflation and shifting currencies mean this debt yields just €1.20 a year, the modern-day equivalent of the long-defunct livres the bond was issued in.

“That [yield] would allow you to buy a baguette of bread once a year,” said the 81-year-old Mr. Verrier from the couple’s home in the Parisian suburb of Asnières-sur-Seine.

Bonds that never mature, or do so after a century or longer, aren’t just museum pieces. The ultralow interest rates of the last decade have encouraged governments and corporations to borrow for increasingly long periods, with some even selling 100-year bonds now.

Argentina, Mexico, Oxford University and the Wellcome Trust, one of Britain’s largest charities, have been among the issuers bonds that will mature in a century. Countries including Japan and Germany have issued so-called perpetual bonds, which never mature.

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Recently, investors have been re-evaluating the long bonds in their portfolio. It’s difficult enough to predict what could happen to a country or company a year ahead, let alone over the next century.

Argentina’s 100-year bonds plummeted in value last year after the country had to turn to the International Monetary Fund for a bailout. They are now trading at around 73% of face value, according to Tradeweb.

In 2015, the Mexican government sold €1.5 billion of debt coming due in 100 years’ time. Though Mexico has avoided the economic troubles of the likes of Argentina, those bonds now trade at around 88% of their face value.

In some cases, long bonds have become collectors’ items worth more than the would-be payout. Dealers in such bond certificates say that prices collectors pay for ultralong bond certificates could go for up to $5,000, depending on their age, rarity and historic importance.

Bob Kerstein, founder of dealership Scripophily.com, said he recently sold for about $700 a New Jersey Junction Railroad company bond from 1886 which was signed by the financier J.P. Morgan. Scripophily is the name of the hobby that includes old bond and stock certificates.

In 2003, Yale University acquired the world’s oldest debt still being honored: a 1648 corporate Dutch water authority bond written on goatskin.

“Such bonds are like a postcard from a different time,” said Geert Rouwenhorst, professor of corporate finance at Yale, who as part of a scholarly endeavor collected the payment, which runs at €11.35 a year, from the Dutch water board several years ago.

Because it was a bearer bond, where the debt is owed to whoever carries it, Mr. Rouwenhorst had to fly to Amsterdam and hold the strip of goatskin to receive the interest, collecting 26 years of back payments while there.

The Verriers don’t physically own the 280-year-old bond known as the “Linotte rente,” named after Claude-Henri Linotte, a 18th-century lawyer. Rather, they have a chest stuffed with letters and documents showing how their family descends from Linotte—and why they could potentially lay claim to the world’s oldest government debt.

The Linotte rente has endured five French republics, two world wars and persistent, if unsuccessful, attempts by the French government to get rid of it. An economist at the Federal Reserve Bank of Chicago, François Velde, unearthed the debt during research in Paris in the 1990s and alerted the Verriers.

Linotte’s work for a French aristocrat, the Duc de Bouillon, earned him an annuity of 1,000 livres—a long-defunct currency—to be paid to him and his family until the death of his last known descendant. That’s equivalent to $14,369 in 2015’s money, according to a historical currency converter devised by Rodney Edvinsson, an associate professor at Stockholm University.

The Linotte found its way onto the government’s balance sheet after the Duc de Bouillon’s lands were annexed by France following the French revolution in 1789, according to Mr. Velde’s research. In 1807, Napoleon Bonaparte cemented the Linotte debt into law.

As early as 1898, the French government offered to settle the debt with Linotte descendants, but the family refused. Inflation, though, would soon begin to ravage the Linotte’s worth—including in 1960, when the government introduced the new franc, knocking two zeroes off the currency’s value.

To this day, the French Treasury books the debt every year, recording it in the public finances, somewhere among the billions of euros spent on hospitals and submarines. Dropping it is not an option, a reminder that some debts never really die.

“It is still booked and will be until the death of the last descendant,” says Roxane Certner, spokeswoman of Agence France Trésor at the Finance Ministry.

Modern-day descendants of Linotte—including the Verriers—still haven’t laid claim to the bond’s income.

Mr. Verrier, a former university lecturer, said he was too busy earlier this year contributing to a book on the birth of Algerian cinema to waste time wrangling with the French state. He and his wife, a retired psychologist, said they are not technologically minded enough to spend hours on computers negotiating France’s bureaucracy for a return that would not cover the bus fare into central Paris.

There’s another risk: The prospect of having to prove their right to the stipend over dozens of other descendants that Mr. Velde tracked down, and who may also wish to lay claim.

“The processes you’d have to go through. We’d spend in stamps, in paper, in time, 10 times more or 100 times more than” the €1.20 that is owed, Mr. Verrier said.

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