U.S. Treasury Department Mulls 50-Year Bonds

Steven Mnuchin, U.S. Treasury secretary

The U.S. Treasury Department said it is considering issuing ultra-long 50-year bonds, the longest ever issued by the U.S. government, as the budget deficit widens to $1 trillion.

“Treasury is taking a proactive approach to prepare for prospective future financing needs,” the Department said in its quarterly refunding statement.

The Treasury Department also said it as exploring the possibility of a 20-year nominal coupon bond, a 50-year nominal coupon bond, and a one-year floating-rate note linked to the Secured Overnight Financing Rate, an alternative to the U.S. dollar London interbank offered rate.

It did not give a timeline for the bonds, but Treasury Secretary Steven Mnuchin has said the government could begin issuing 50-year bonds as soon as next year.

The longest duration U.S. government bond is 30 years. Countries including Canada, Belgium, and Ireland have issued bonds in the 40-to-100-year maturity range.

“It seems they’re getting to the upper limits of what they can raise with the current suite of products,” Gennadiy Goldberg, a government bond analyst at TD Securities, said in an interview. Gennadiy said new long-term securities and new short-term securities would be necessary as deficits continued to increase.

The Treasury Borrowing Advisory Committee said it expected “meaningful” market demand for a new 20-year bond, which “could be a positive addition to Treasury’s issuance toolkit.” The advisory committee has been skeptical in the past that 50-year bonds would lower borrowing costs.

In September, Mnuchin said the U.S. government would even consider 100-year bonds if demand warranted.

“We are going to start with 50 years, and if the answer is, 50-years is successful, we’ll consider 100-year bonds,” Mnuchin told the New York Times’ DealBook.

The federal deficit reached $984 billion for the 2019 fiscal year, the highest in seven years. The United States has $22.5 trillion in debt with $16.7 trillion held by the public.

Chen Mengtong/China News Service/VCG via Getty Images