Ultra-Long Bond Debate: Secretary Mnuchin Likes Them, His Committee Doesn't

Are ultra-long bonds a good idea? Treasury secretary Mnuchin and his advisors don't agree.

In a Bloomberg interview Mnuchin says Ultra-Long Bonds Under ‘Very Serious Consideration’.

Treasury Secretary Steven Mnuchin said issuing ultra-long U.S. bonds is “under very serious consideration” in the Trump administration, possibly setting up a move that would mark a historic revamp of the $16 trillion Treasuries market.

“If the conditions are right, then I would anticipate we’ll take advantage of long-term borrowing and execute on that,” Mnuchin said Wednesday in a Bloomberg interview in Washington.

The concept of issuing 50- or 100-year bonds dates back to at least 2009 and has recently gained traction within Treasury. For the Trump administration, issuing extremely long-term debt would limit the cost to taxpayers of plugging a budget deficit that’s headed to $1 trillion annually. Pension funds would enjoy a few extra points of returns amid falling yields.

Thumbs Down

The above interview took place yesterday. Today, Bloomberg reports Mnuchin’s Bond Advisers Poised to Give Ultra-Longs Thumbs Down.

The elite bond market group that advises Treasury Secretary Steven Mnuchin on how best to manage America’s finances is likely to caution against his idea of reviving a plan to sell bonds maturing in 50 or 100 years.

The idea was turned down in the past by the Treasury Borrowing Advisory Committee, the body that helps guide him, and their views on the matter haven’t changed since then, according to people familiar with their current and past thinking. The committee is likely to double down on past counsel that such sales wouldn’t be sustainable in a consistent fashion over the long term when Treasury debt managers gather next in October, the people said.

“The views TBAC presented in May 2017 regarding the debatable benefits of the U.S. selling 50- or 100-year remain true today because it emphasizes Treasury’s goal to have issuance be regular and predictable over time,” said Jason Cummins, who was TBAC chair in 2017 and is now chief U.S. economist at hedge fund Brevan Howard Asset Management.

Convexity Discussion

Demand

Sweden May Join Austria

Note that Sweden Explores Issuing Bonds as Long as 100 Years.

Trump vs Fed Feud Continues

Whose Decision?

Mnuchin can override the committee. And of course Trump can override Mnuchin.

I suspect they will go half-way and issue 50-Year bonds.

Why?

Trump will force the issue or Mnuchin will follow the lead of Europe.

Mike "Mish" Shedlock

Comments (30)
No. 1-14
2banana
2banana

Of course long bonds, at near record low interest rates, are good for the government.

In 50-100 years - so much can happen.

Wars, inflation, etc.

Fools who buy them expect a greater fool.

lol
lol

Unless you work in govt,subsidized by govt,dependent on a govt check,govt contract govt paycheck,govt handout check,there's really no way to earn a living in this ridiculousy permanently shittty economy

Maximus_Minimus
Maximus_Minimus

Excellent idea for the "inventors" who will cash in. As it catches fire, and everybody does it, the yield will inevitable decline. The next "invention" will be 500, followed by 1000-year bond.

abend237-04
abend237-04

Throughout history, savers agreeing to forego present consumption and rent their capital have had dividends and interest as options. Even a 50 year bond, in times of central bank ZIRP, utterly destroys the interest option, and this by government no less. Disgusting.

Casual_Observer
Casual_Observer

Would the Chinese really trust the return on a 100 year bond ? Who would? Even 30 years is way too long in this world now. Some coastal cities will get wiped out in 30 years. The world is not as stable a place as it use to be.