Mnuchin says White House seriously considering ultra-long bonds
Treasury Secretary Steven Mnuchin said the Trump administration is considering issuing ultra-long bonds, far beyond the current three-decade maximum.
“If the conditions are right, then I would anticipate we’ll take advantage of long-term borrowing and execute on that,” Mnuchin told Bloomberg News during an interview this week after officials held a meeting to discuss the possibility, he said.
The concept of issuing 50- or 100-year bonds dates back to at least 2009, Bloomberg reported and has gained some traction within the White House on the heels of historically low rates (in mid-August, the 30-year bond yield fell below 2 percent for the first time ever.)
On Wednesday, the spread between the two-year and 10-year Treasury notes steepened, spurring fears about the possibility of an impending recession. However, Mnuchin told Bloomberg the drop on short-term U.S. debt is unrelated to his renewed interest in long-term bonds.
“There are people who think that the yield curve can predict a recession -- I don’t believe that,” Mnuchin said Wednesday. “The answer is: In environments when the market thinks that the Fed is going to lower short-term rates, and that’s built into the market expectation, people end up buying longer-term securities, and that’s what can lead to a flat or inverted yield curve. The market adjusts quicker than the Fed.”
Century bonds could help the White House reduce taxpayer pain on lowering the budget deficit, which is heading toward $1 trillion annually, and boost pension funds.
And long-dated securities aren’t uncommon in other countries: Mexico raised $1 billion in 2010 with a 100-year bond offering; Belgium and Ireland, in 2016, each raised 100 million euros with 100-year bonds.
In the past decade, the Treasury has examined the possibility of issuing long bonds about four times, Bloomberg reported.