Ultra-long bond sales “may make sense, though it may be challenging to fit into Treasury’s rubric of regular and predictable issuance,” said Amar Reganti, a fixed-income strategist at GMO’s asset-allocation group, and a former deputy director of the Treasury’s Office of Debt Management.
Mary Miller, the Treasury’s former undersecretary for domestic finance, says while it’s prudent to adjust debt offerings at times, there are diminishing returns from extending debt beyond 50 years. She helped engineer the 2014 launch of the floating-rate note, the Treasury’s first new security since TIPS.
“In my experience of considering longer-term debt, it doesn’t make a lot of sense past a 50-year maturity,” she said.
That hasn’t stopped a number of other countries from issuing ultra-long bonds in recent years to take advantage of low interest rates. Nations including Canada, France, Mexico, Switzerland and the U.K. have all sold debt maturing from 40 years to 100 years, though few have done so on a regular basis. Several companies have also issued century bonds.
Needy Boomers
Fisher, who is now a senior lecturer at Dartmouth College, says a good argument for the U.S. government to consider issuing ultra-long bonds is that it would help push financing needs past the droves of baby boomers who are currently retiring and drawing Social Security.
“I had hoped to come back and eventually issue 60- or 100-year maturities, but we didn’t get around to it,” he said, referring to his tenure at the Treasury.
Gemma Wright-Casparius, a senior money manager at Vanguard, says one feasible approach would be for the Treasury to cut the size of its 30-year bond sales to make room for a 50-year bond. She said Vanguard, which oversees $4.1 trillion, would be buyers if the ultra-longs are included in benchmark bond indexes -- as long as the price is right.
“I don’t see any reason why not,” she said. “For Treasury, anything is possible, as long as they do their due diligence.”
This article was provided by Bloomberg News.