Who Wants to Buy a 100-Year Bond? It Depends on the Yield

By Josh Zumbrun Features Dow Jones Newswires

For the Treasury Department to issue 40-year, 50-year or 100-year bonds, or for investors to consider buying them, it sure would help to know the price.

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Such ultralong bonds are under active consideration at Treasury, and so this month The Wall Street Journal's survey of economists asked respondents to estimate what the yields on those bonds would be, and whether they would be worth it.

The results: They believe the yield on the 40-year Treasury would be about 0.3 percentage point higher than on the 30-year, or about 3.34% today. A 50-year bond would price at 3.5%, they estimate, while the 100-year bond would have a yield of 3.98%.

"Bond investors would likely demand higher yields on longer-maturity bonds to compensate for government debt and inflation risks," said Scott Anderson, chief economist of the Bank of the West.

Therein lies one of the key challenges of such bonds. In order for them to attract investors, they will likely need to have higher yields, perhaps considerably higher. But as yields rise, it will be harder for the Treasury to reap any cost-savings from the program.

That's one reason that the Treasury Borrowing Advisory Committee -- made up of some of Wall Street's biggest investors and dealers -- advised that such long-bonds might not be worth pursuing.

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Some economists share that assessment, such as John Silvia, chief economist of Wells Fargo, who said such bonds were "not a viable market" and would have "inconsistent issuance over business cycles." But just over 60% of survey respondents said strong and sustainable demand would develop for 40- and 50-year bonds. Over 50% said such bonds would be worth implementing.

"Endowments, pension funds and life insurers will love these options," said James Smith of Parsec Financial Management.

While a 3.5% yield is higher than most government debt now, such a yield certainly could prove to be a good deal over the course of the next half-century.

"Should have been doing this for the past eight years," said Joel Naroff, president of Naroff Economic Advisors. "It stabilizes the payments at a relatively low rate."

The 100-year bond, however, was far less popular in the survey. Over 60% said the bonds would lack demand and not be worth pursuing. Estimates of its yield were nearly a full percentage-point higher than for the 30-year. Pension funds and insurance companies do have some liabilities they can anticipate 50 years in the future, and so may buy 50-year bonds as a way to manage that.

But century bonds would be due in the 2100s, the time frame of intergalactic bloodshed in the "Alien" movies and the Martian moon battles of the "Doom" videogames, not the time frame of today's investors.

"The message of issuing ultralong Treasurys is that you plan to take on a lot of debt, and that should trigger some caution by investors," said Diane Swonk, founder of DS Economics, an economic consultancy.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

May 12, 2017 07:14 ET (11:14 GMT)