Treasury Considers 50-Year Bonds as Deficit Tops $1 Trillion

Several analysts, when contacted Thursday, pointed to the fact that in 2017, the group that advises the Treasury on market conditions investigated the potential for issuing such long-term debt, and found little evidence of strong or sustainable demand for it among investors.

“I’m personally skeptical that it makes sense now,” said Seth Carpenter, the chief United States economist at UBS, who served as acting assistant secretary for financial markets at the Treasury Department from 2014 to 2016. “But the balance of the argument has shifted pretty dramatically, and it’s gone in the direction of making it more plausible.”

Ultimately, analysts say, the decision to issue ultralong-term debt should not be made because of a short-term move in bond market yields. For decades, the Treasury Department has tried to distance itself from such tactical or opportunistic offerings of debt, instead focusing on maintaining a regular and predictable system of issuing new securities. That system emphasized building the broad buyer base that makes Treasury debt some of the most liquid, or easily traded, financial instruments available.

The depth and liquidity of the market has value to investors, who are willing to pay higher prices — and accept lower yields — in exchange for the ease of trading. That helps lower the government’s borrowing costs. Some market participants say they are concerned that an effort to issue ultralong bonds without sufficient demand could be disruptive.

“It looks like a very opportunistic move that will just probably distort the Treasury curve for the time being and then get terminated, so why bother?” said Ralph Axel, an interest rate strategist at Bank of America Merrill Lynch.

Disruption in the Treasury market could potentially have broader implications, as a broad range of financial products — such as mortgages, car loans and corporate bonds — are based, in part, on the Treasury market rates.

“The Treasury market is the backbone of fixed income markets globally,” Mr. Axel said. “So you have to treat it with a lot of care.”

Source link