(Bloomberg) – With interest rates on 30-year debt in the United States hitting general lows this week, the government is once again considering whether to start borrowing even longer.
The U.S. Treasury Department said Friday that it wants to know what investors think of the government that could potentially issue 50-year or 100-year bonds, and goes well beyond the current maximum of three decades.
The Government emphasized that no decision has yet been made on ultra-long bonds, explaining that it wants to "refresh the understanding of market appetite." The idea was picked up before, back in 2017, but was shelved after receiving a less than warm reception.
"This is coming up now and again," said Gennadiy Goldberg, US stock exchange strategist at TD Securities. "Every time the takeaway is, there simply isn't enough demand for that tenor, or at least it hasn't been in the past."
The announcement follows a fall in the 30-year return to a record low for less than 2%, and also comes in the wake of many other nations choosing to extend their loan profiles with so-called century bonds. Investors have snapped up 100-year bonds issued by such as Austria, though the experience of Argentina underscores some of the potential pitfalls of buying such maturity loans.
The yield on the United States current benchmark 30-year bond peaked to its current highs and the curve steepened following the announcement of the Treasury. The 30-year rate climbed as much as 8 basis points a day to 2.05%, before ending the session at around 2.03%. The spread of interest rates between the US's longest-term debt and the two-year shift expanded the most in five weeks on Friday.
The Treasury Borrowing Advisory Committee's Treasury Group Group has long been un enthusiastic about the prospects of an ultra-long case, said Bruno Braizinha, director of US investment research at Bank of America.
The challenge for the Treasury would be to offer a return attractive enough for the typical investor base of pension funds and institutions, while at the same time a cap on borrowing costs for US taxpayers.
Following Braizinha's estimate, the return on a 50-year share issue is expected to reach around 10-30 basis points above the 30-year rate.
(Updates with dividend spread in sixth paragraph)
– With assistance from Liz Capo McCormick, Benjamin Purvis and Katherine Greifeld.
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