The White House is considering the sale of 25- and 50-year bonds to help finance the fiscal stimulus package aimed at cushioning the economic blow from the COVID-19 outbreak, according to reports from White House sources originally reported in Bloomberg News.
The bonds would be used to fund the $1.3 trillion stimulus package and a series of taxpayer bailouts stemming from the fallout of the pandemic.
News of the potential long-term bonds sent long-term bond yields higher, until an initial jobless claims report brought rates back down.
“The Fed will buy [them],” Lale Topcuoglu, senior fund manager at J O Hambro, said of the prospect of new 25- and 50-year bonds.
“The central banks are there to support the federal government at times of crisis, and this is a time of crisis and you’ll see it around the world. The Fed is there,” said Topcuoglu, who said she doesn’t want to label the possible move. “We can worry about labeling it down the road. It just needs to be done. I think we get too worked up between the investors and the politics and like how to do it. The speed and the efficiency is important. We have got to get going. Because if you can’t stop this, I think the shape of the V and the depth of the V is going to be brutal,” she added.
While the Treasury Department has discussed the long-term bonds in the past, there has not been a huge demand, sources said. But with interest rates so low now, the White House may be hoping the bonds will be more desirable.
The idea is to spread out the debt as long as possible to give the government time to pay back the debt.
“Insurance companies and pension funds will buy those long-term bonds all day, every day, so there is a group of players in the market who will gobble that up and it will be constructive for them,” said Megan Greene, a Harvard Kennedy School senior fellow and former insurance company analyst.
Some investors and analysts have called for the Treasury to issue longer-term debt to take advantage of the current low level of borrowing costs. At the same time, investors say the climb in bond yields this week could complicate the U.S. government's plans to issue a wave of debt to fund the stimulus efforts. The 10-year Treasury note (TMUBMUSD10Y,1.085%) yield stood at 1.151%, and the 30-year bond yield (TMUBMUSD30Y, 1.779%) traded at 1.773%.
Layoffs sent initial jobless claims up to 70,000 for the week ending March 14, the highest level since September 2017, when Hurricane Harvey disrupted U.S. businesses.