“Demand is going to vary a lot,” he said. “Presumably you want to issue every year, you’re going to have auctions of these ultra-long bonds that are going to systematically fail in periods of ultra-low yields.”
That was the crux of Wall Street’s argument against the move the last time the Treasury broached the idea of ultra-long issuance. It received a cool reception as dealers said demand wasn’t sufficient to maintain the government’s goal of regular and predictable issuance.
For Briggs at NatWest, another risk is that 50- or 100-year debt could cannibalize demand for the 30-year. In 2017, some saw the potential for ultra-long issuance to further erode dealer margins that have been squeezed by automation and alternative sources of liquidity, by offering an alternative to the almost $300 billion market for zero-coupon Treasuries, known as Strips.
Instead, some analysts proposed reviving 20-year bonds, which were discontinued in 1986. The issue was included in the Treasury Borrowing Advisory Committee’s list in January of potential new securities the government might use to expand its investor base.
Given the voracious global demand for duration and the appeal of locking in low borrowing costs for generations, some observers see a window for the department to move forward in the face of Wall Street’s concerns.
“If rates remain at current levels, I could imagine the Treasury moving ahead with this,” said Lou Crandall, chief economist at Wrightson ICAP.
This article was provided by Bloomberg News.