Credit & Capital

U.S. Treasury Shifts to Longer-Duration Debt

The launch of a 20-year bond comes as Treasury seeks to fund its increased borrowing due to the government’s coronavirus relief spending.
Matthew HellerMay 7, 2020

The U.S. Treasury Department will offer a 20-year bond for the first time since 1986 to fund its increased borrowing due to the government’s coronavirus relief spending.

The 20-year bond is part of Treasury’s shift from bills to longer-duration securities as it seeks to borrow a record $3 trillion this quarter.

“With the red ink building on a $25 trillion national debt, the Treasury is looking to stretch the duration while long-term [interest] rates remain around historic lows,” CNBC said.

The department will auction $20 billion worth of the 20-year bond on May 20. It is also increasing auction sizes for other maturities, selling a 10-year note in the amount of $32 billion and a 30-year bond in the amount of $22 billion starting this month.

Additional 20-year bond auctions are expected in June and July, with each sale offering $17 billion of notes.

“While the initial increases in financing related to the COVID-19 outbreak response were focused on Treasury bills, Treasury expects to begin to shift financing from bills to longer-dated tenors over the coming quarters,” Brian Smith, assistant secretary for federal finance, said in a statement.

“In light of the substantial increase in borrowing needs, Treasury plans to increase its long-term issuance as a prudent means of managing its maturity profile and limiting potential future issuance volatility,” he said.

Since the end of March, Treasury has raised an unprecedented $1.464 trillion on net and its cash balance has reached historically high levels

John Briggs, head of strategy for the Americas, said the 20-year bond would be especially attractive to insurers and pension funds who need more duration in their portfolios to mitigate risk.

“The main story here is they have chosen to lean hardest on the long end of the curve,” said Steve Stanley, chief economist at Amherst Pierpont.

“I recommended that Treasury start small with 20s, at least for the first quarterly cycle … instead Treasury is jumping in with both feet, hopeful that demand will be robust for 20s and that there will not be much cannibalization of demand for 10s and 30s,” he added.