Daily Archives: 5 May 2017

Long Maturity Debt Instruments

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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.

EU and Brexit

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The European Union is either demonstrating its lack of understanding of a main motivator for the people of Great Britain’s decision to quit the EU, or it’s intent on making the departure onerous pour encourager les autres, or some combination of the two.  Michel Barnier, the EU’s “Brexit negotiator,” has laid out the terms of his initial position.

One such term is

ensuring that EU citizens in the UK keep their welfare benefits and residency rights for their lifetimes.

Never mind that EU citizens drawing welfare benefits should have those benefits paid for by the EU or those citizens’ home country—which do not today pay the generous rates that the British government does.

Furthermore, those rights

should be directly enforced by the European Court of Justice, the EU’s top court, giving it a role in Britain until “well after the UK leaves.

This ignores the simple fact that, as a sovereign nation, Great Britain gets to use its own court system for all domestic matters and to determine whom it shall permit within its borders.  It is not for any nation, or any foreign court, to dictate to another to what laws that other must submit or whom that other must accept into its bosom.

That’s not all.  There must be

British payment to cover past EU financial commitments[.]

The payments, of course, insists the EU through Barnier, must be in euros, putting the currency exchange risk on the departing Brits.

And

the status of the Northern Ireland border

is for negotiation and not for the sovereign British to decide with the Republic of Ireland—which is to say the border’s status is already determined.

And this bit:

Michel Barnier repeatedly emphasized that Brexit would be painful and complicated.

Which reminds me of what Theron said to Queen Gorgo in 300.  Barnier displays the same contemptuous disdain for Great Britain.  He should however, recall Theron’s fate at Gorgo’s hand.