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
So instead of trying to solve trillion dollar deficits, they are looking for ways to keep them going. These people are crazy.
Ask the suckers who bought the OVERSUBSCRIBED issue of Argentine 100-year bonds TWO YEARS ago whether they think 100 year bonds are a good idea.
Not comparable.
Argentine 100 year bonds denominated in $US.
US will NEVER default … Federal Reserve will purchase if necessary.
Argentina is one of the lucky countries that can even issue bonds, although in dollars. Have you heard of Egyptian bonds? No, because no one in his right mind would consider it. If a country doesn’t swim on oil or other resource, her main asset (liability) are the population.
“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,”
…
The ability to have regular and ongoing auctions of very long dated instruments is a valid point (at low interest rate is their concern). BUT, the TBAC is clueless here (TBAC a bunch of Wall Streeters with a Goldman Sachs dopette as Chair). The US is drafting on Japan so ability to have auctions in foreseeable future (at low rate) will not be a problem. Heck, it will put a little curve into the yield curve. A little. For now 🙂
Issuing very long bonds in the current rate environment makes sense for a borrower. If Austria can find buyers (stupid enough), I’m sure the US can.
I would personally issue a 100 year bond. Can’t imagine anyone would buy it.
100 year bonds to create 100 trillion debt …….makes sense….
If the yield on a long bond is inverted with respect to the rest of the yield curve, then the government could repay existing shorter term loans with the long bond and reduce annual debt payments. Holders of shorter term debt could get crushed since shorter term debt face value is less than market value.
I just said yesterday that I was surprised that the US was the lone nation to reject 100 year bonds. Then I wake and see Munchkin wants to sell them. Every day we just keep getting deeper down the rabbit hole.
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.
Your argument is a reason to issue the bonds. As long as there are buyers and the rates are close to zero, why not.
Buyer beware!
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.
The parties buying 50 year bonds are not foregoing present consumption. They have no ability to consume. They are simply trying to grow money into more money, which is the same as saying they are trying to increase their share of “ownership” in the economy by bidding on shares in such ownership. This isn’t about working stiffs preferring to save for fixed income in retirement instead of buying a boat: that is a different economy (and the price of fixed income in the future is well nigh infinite at the moment).
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.
I had already mentioned “millenial” bonds 2-3 days ago.
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
Not true, there’s good money to be made taking from the Federal Reserve.
Yes, leaching from the Fed affords one a far more opulent lifestyle than leaching form the government. Go straight to the source!
The gov only gives one an unearned upper middle class lifestyle, the Fed puts you in the jet set. Gov employees and contract beneficiaries also have to suffer the indignity of people knowing what they make. The Fed’s balance sheet is permanently off limits so Joe Sixpack doesn’t even think about it.
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.
….And the greatest fools of all, are those dumb enough to fall for the nonsense that they, their neighbor and their neighbor’s (great grand) children, are somehow obliged to bust their rear to pay “taxes,” just so that Mnuchin and other expendables can preen around playing fashionably socialist.
The quicker Americans grow up, wise up, stop being stupid, childish patsies, and simply default on the debt issued by the Mnuchins of the world, the quicker this retardocracy will have a shot at becoming a country at least possibly worth bothering with again. If Mnuchin, and similar clowns, wants to issue 100 year bonds, he/they should go right ahead and do it. And then start saving to pay them back. While leaving his/their betters out of it entirely.
If people wanna buy it … it’s a free market. As for paying it back. The money created will not go out of existence … it will move to other hands. And as for the income stream, it will also go to someone’s grandchildren.
One thing we can say.
If they are paid back, IF, it will be with confetti currency.
Nothing more than tptb signalling the cost at redemption will be minimal because so will be the value of the currency they will be redeemed in.
So, take part, or buy hard assets, or both?
Capital appreciation on the bond in the short-term may be possible simply due to the herd.