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Trump administration’s ultra-long bond talk faces scepticism

The Trump administration’s interest in issuing the US government’s first “ultra-long” bonds, following in the footsteps of countries such as the UK, Mexico and Belgium, is facing scepticism from fund managers, analysts and former officials.

The US Treasury in April asked its “primary dealers”, the club of banks that underwrite and arrange the government’s debt sales, to explore whether there would be demand for Treasuries that mature well beyond the current 30-year outer limit. This may open the door for even issuing “century bonds” maturing in 100 years.

Later this week, the Treasury will unveil its quarterly funding plans and meet bankers, traders and asset managers to discuss investor demand, including for new long-maturity bond issuance.

But the Treasury has repeatedly explored the possibility, most recently in 2014, and always decided against it. There remain serious doubts that the case is any stronger this time around.

“It is questionable whether this will save taxpayers money and how much demand there is for it,” said Amar Reganti, a strategist at GMO, the Boston-based asset manager and the former deputy head of Treasury’s Office of Debt Management.

“There’s probably a greater chance of it happening than last time, but there’s still not a great chance.”

Treasury staff have long been sceptical that ultra-long debt issuance — sometimes termed “Methuselah bonds” — is a good deal for the government, given that it would have to pay a higher price than for 30-year Treasuries with questionable funding benefits.

Ultra-long bonds would probably not cost much more. George Goncalves, head of US rates strategy at Nomura, estimates that a 50-year Treasury would only yield about 20 to 25 basis points more than the existing 30-year benchmark, currently trading at 2.98 per cent. Yet even this slender premium might not be low enough to convince Treasury that it makes sense.

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