The Treasury Is Considering 50-Year Bonds

Treasury Secretary Steven Mnuchin recently said that the Treasury is considering floating 50-year Treasury bonds. I think this would be a good idea.

Generally speaking, the larger your debt is, the longer you want to roll it out. Now that Uncle Sam’s debt is at $20 trillion, we should think about longer durations. Also, interest rates are still historically low. This would be a good opportunity to lock in low yields.

Having a liquid market is valuable, but the market is telling other bond issuers that it wants lots more long-term debt. The Treasury should sell more 30-year bonds, and even 50-year or 100-year bonds to meet that demand.

Ireland, Belgium and Mexico have recently sold 100-year bonds. Ford, Disney and Coca-Cola have sold 100-year bonds as well. The Canadian Pacific Corp. sold a 1,000-year bond.

And many governments, such as the U.K., have issued bonds that have no maturity date at all: Called perpetuals or consols, these bonds continue paying a coupon year-after-year until the principal is redeemed. The U.K. recently redeemed the consols that had financed its earlier wars against Napoleon and the kaiser.

Who buys these long bonds? Mostly pension funds and insurance companies that want to match the maturities of their assets and their liabilities. The U.S. government should also think about issuing more long-term bonds to match the timing of future Social Security and Medicare payments.

Kudos to Mnuchin and Trump for thinking of the taxpayer first.

From a data perspective, I’d be curious to see if there’s any significant difference in the yield of a 30-year and 50-year bond.

Posted by on February 27th, 2017 at 9:14 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.