Other Options
Treasury Secretary Steven Mnuchin said in the statement that “we will continue to evaluate other potential new products” to finance debt at the lowest cost over time.

The decision, made in consultation with dealers, comes after the U.S. reviewed options including ultra-long bonds maturing in 50 or 100 years. The current maximum is 30 years. Many on Wall Street lobbied against those longer durations.

At President Donald Trump’s request, Mnuchin in August began a second review into ultra-long bonds since taking office. Trump has said repeatedly the U.S. should seek to take advantage of historically low interest rates.

Budget Deficit
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 are also likely to enjoy a few extra points of returns amid falling yields.

“Lengthening duration as a borrower in the current very-low interest-rate environment is a sensible move,” said Michael McCarthy, chief market strategist at CMC Markets Plc in Sydney. “It’s the richest and deepest of markets around the globe. They are happy to take a long-run view to reshape their portfolio for the long term.”

Among the risks of an ultra-long bond is the ebb and flow of demand over the course of an economic cycle. Buyers may be enthusiastic when yields are high, but in downturns, when the Fed is cutting rates, interest may evaporate, pushing government borrowing costs higher.

For now at least, demand is likely to be sustained, market participants said.

There’s a large gap between the 10-year and 30-year bonds so “there will be demand for it,” said Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut. It will appeal to “people that don’t want to go all out to 30 years,” he said.

This article was provided by Bloomberg News.

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