Long Maturity Debt Instruments

Treasury Secretary Steven Mnuchin is kicking around the idea of instituting long-maturity debt instruments, specifically, 50-year and 100-year US bonds.

Treasury’s Borrowing Advisory Committee, though, demurs.  This committee, made of movers and shakers of financial institutions that are themselves movers and shakers in the bond market,

does not see evidence of strong or sustainable demand for maturities beyond 30 years.

They ask a not unreasonable question, too:

what types of investors would buy ultralong bonds….

On that, the US has tried long(er) maturity bonds before—50-year instruments to finance the Panama Canal and 40-year instruments in the Eisenhower and Kennedy administrations to, in Eisenhower’s words, stretch out the national debt, for instance.

Over the years, however, the Treasury concluded it could most efficiently finance large amounts of debt through regular auctions of 30-year bonds.

That’s not the only possible market for Treasury ultra-long bonds, though.  Just one venue might include investors, especially institutional investors, looking for ways to hedge really long-term risk.  Government ultra-longs might be one way.  The question, from Government’s perspective, thus is irrelevant.

Any lack of demand for such long maturities—in any venue—simply means that such debt instruments wouldn’t be bought.  That should be a market decision, made by American individual investors, not a centrally controlled market decision made by Government.

It’s also a cheap experiment to run: it would cost Government nothing to offer to borrow at such lengths when no one would lend at such lengths.

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