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There is little evidence of strong or sustainable demand for “ultra-long” US government bonds, an advisory committee to the US Treasury has concluded.
The current administration has been looking at whether it should introduce new bond issuance that exceeds the current 30-year maturity threshold. Treasury secretary Steven Mnuchin said on Monday that it “could absolutely make sense for us at the Treasury”.
But minutes of the Treasury Borrowing Advisory Committee’s meeting on Tuesday show scepticism from members about the demand from both pension funds and insurance companies, tipped as likely buyers of the debt. It also noted that foreign investors would also likely have little demand for the debt.
“While an ultra-long is most likely to be demanded by those with longer-dated liabilities, the committee does not see evidence of strong or sustainable demand for maturities beyond 30-years,” said the minutes, released on Wednesday morning.
The committee presented alternatives to tapping long duration demand from investors, including resurrecting suggestions to the Treasury of issuing a new 20-year bond.
Currently the Treasury issues 10-years and 30-years but nothing in between. Insurance companies would have demand for 20-year issuance to provide a price reference for corporate bond holdings of a similar maturity, the committee said. The committee recommended against issuing a 100-year bond.
One committee member estimated that the yield on a 50-year issuance would only be 7 basis points higher than the 30-year, less than other analysts have predicted.
The yield, which moves inversely to price, on the 30-year bond is down 2.5 basis points to 2.94 per cent on Wednesday, dipping after the release of the TBAC minutes.
Another member said that modelling the impact of extended maturity debt issuance showed no “meaningful benefits” to long term debt issuance.
“The reduction in the variation in debt funding costs from extending to very long maturities is limited. Moreover, if the term premium increases with duration, moving to very long maturities would raise the expected cost to the Treasury,” according to the report to the Treasury secretary.