Why Trea­sury won’t go ul­tra­long

Other coun­tries are is­su­ing bonds that ma­ture in 40 to 100 years “The Trea­sury likes to see large, liq­uid mar­kets”

Bloomberg Businessweek (Asia) - - NEWS -

The Department of the Trea­sury has a chance to grab a bar­gain. The U.S. government is the world’s big­gest debtor, and its cost of bor­row­ing is in­cred­i­bly low. At the most re­cent auc­tion, it had to pay only 2.6 per­cent on a 30-year Trea­sury bond. But that’s the long­est-ma­tu­rity debt the U.S. sells—why not lock in low in­ter­est rates for even longer?

Since 2014, Bel­gium, Canada, France, Mex­ico, Spain, Switzer­land, and the U.K. have all sold debt ma­tur­ing in 40 to 100 years. In 2015, Mi­crosoft and Ver­i­zon Communications sold bonds with 40-year ma­tu­ri­ties, and the Univer­sity of Cal­i­for­nia is­sued 100-year obli­ga­tions. “If rates go up, it’s a his­toric missed op­por­tu­nity by the U.S.,” says Camp­bell Har­vey, a finance pro­fes­sor at Duke Univer­sity.

The Trea­sury sees things dif­fer­ently. Since the 1970s, it’s pur­sued a policy of pre­dictable, reg­u­lar bond is­suance. The Trea­sury wants to make sure the mar­ket for its $13.4 tril­lion in bonds re­mains re­li­able and easy for in­vestors around the globe to trade in. To the ex­tent in­vestors re­ward re­li­a­bil­ity with lower in­ter­est rates, the policy may save tax­pay­ers money. A longer-ma­tu­rity bond might be is­sued spo­rad­i­cally, when rates are at­trac­tive and there are enough buy­ers for such an un­usual security.

Senator Mark Warner, the rank­ing mem­ber of the Bank­ing, Hous­ing, and Ur­ban Affairs Sub­com­mit­tee on Se­cu­ri­ties, Insurance, and In­vest­ment, none­the­less ar­gues that longer-term is­suance is worth a shot. “This is an aca­demic dis­cus­sion un­til we try it,” the Vir­ginia Demo­crat says. Is­su­ing longer-term bonds doesn’t re­duce the debt bur­den, he says, “but it does re­move some of the risk from in­ter­est rate spikes.”

“Trea­suries are dif­fer­ent,” said An­to­nio Weiss, a coun­selor to the secretary of the Trea­sury, in tes­ti­mony to the Se­nate sub­com­mit­tee in April. “We

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