(Photo: ThinkAdvisor)

U.S. life insurers and pension funds may like long bonds, but 100 years is probably too long even for most of them.

The Treasury Borrowing Advisory Committee, an arm of the Securities Industry and Financial Markets Association, gave Treasury Secretary Steven Mnuchin that assessment in a report last week.

(Related: Ultra-Long U.S. Bonds Can Absolutely Make Sense: Mnuchin)

The committee looked at the idea of offering ultra-long bonds, such as 50-year bonds or 100-year bonds. Advocates say ultra-long bonds could give the Treasury a stable new source of financing and help institutional investors match liabilities with very long durations with bonds with similar durations.

The managers of the Medicare and Social Security trust funds have prepared projections showing what their financial situation might look like in 2090.

In theory, a family could buy a lifetime income annuity from a commercial life insurer this year, to cover a child’s expenses for a lifetime. The annuity could make income payments for 80 years or more.

In the real world, however, the typical corporate defined benefit pension plan has a liability duration of only about 12 years, and it expects to pay only about 15% of its benefits beyond 35 years, Jason Cummins, the SIFMA committee chairman, wrote in a report summarizing the committee’s review of the ultra-long bond market.

Life and annuity companies could be another source of demand for ultra-long Treasury bonds, but those companies generally prefer to invest in higher-paying corporate bonds, and U.S. government holdings account for only 4% of their overall holdings, Cummins wrote.

“Insurers would have more demand for 20-year investment grade issues,” Cummins wrote. “There would appear to be significant demand from insurers at the 20-year part of the curve for investment-grade corporate debt.”

Insurers might like to see the Treasury sell 20-year bonds, to provide a reference bond for corporate issuers, Cummins added. Financial services companies use reference bonds to create credit derivatives.

— Read Mnuchin’s Ultra-Long Bond Bid Hits Wall Street Reality on ThinkAdvisor.