U.S. TREASURY CONSIDERS SELLING 50-YEAR BONDS / THE FINANCIAL TIMES

US Treasury considers selling 50-year bonds

Move comes as global borrowing costs hover near record lows

Colby Smith in New York and Tommy Stubbington in London


The US government is considering selling 50-year bonds, joining other countries around the world that have seized on investors’ hunger for long-dated debt to lock in record-low borrowing costs.

Two years after suggesting there was weak demand among investors for super long-dated debt, the US Treasury has said it is testing market appetite for bonds that mature in half a century — compared with the 30-year maximum in place today.

The decision to consider much longer-dated debt instruments comes after a record-setting bond rally, which caused benchmark 10-year Treasury yields to plummet below 1.5 per cent, the lowest level in three years. At one point, the voracious demand for global bonds pushed yields on roughly $17tn of debt below zero as investors piled into longer maturities in search of returns.

A recent survey of big asset managers by Bank of America Merrill Lynch found that buying US Treasuries is at the top of the list of most popular trades.

“We’ve seen a back-up in yields but we like long-dated US Treasuries,” said Andrea Iannelli, London-based investment director at Fidelity International. “The Fed is one of the few central banks that has meaningful room to cut rates, and they function as an insurance against drawdowns in riskier assets.”

Treasury secretary Steven Mnuchin has repeatedly talked up the prospects of a 50-year bond, or even one that matures in 100 years, given rock-bottom borrowing costs.

He commissioned a report looking into the matter two years ago, only to receive a resounding message from Treasury officials that there was no “notably strong or sustainable” demand for debt beyond 30 years in the US market.

Gennadiy Goldberg, a US rates strategist at Toronto-based TD Securities, said a “century bond” like the ones now issued by Austria, Belgium and Ireland may not be feasible in the US given a potential dearth of buyers. But he does think there could be more traction for a 50-year bond.

In addition to 50-year bonds, the Treasury said it was also exploring the issuance of a 20-year bond, as well as a one-year floating rate note linked to the Secured Overnight Financing Rate, which replaced the scandal-tainted Libor.

Mr Goldberg said he saw the 20-year bond issuance — something the Treasury last did roughly three decades ago — as an easier sell. For one, he said there would be fewer questions about pricing because it already exists on the Treasury’s yield curve and it is likely to trade more frequently than its longer-dated counterparts.

Should enough market participants indicate interest in a half-century bond sale as well, however, the Treasury could very well roll out both. “There’s an old adage in markets — demand generates its own supply,” added Mr Iannelli.