The U.S. government is one again considering issuing bonds with 50- or 100-year maturities, according to Bloomberg News.
The longest maturity Treasury is the 30-year bond, and its yield fell to a record low 1.94% on Aug. 15, before ending the week at 2.03%. An even longer maturity bond, which would presumably have a slightly higher yield than the 30-year bond, would allow the federal government to lock in extremely low interest rates for an even longer period of time and help finance a growing budget deficit.
The deficit is expected to reach between roughly $900 billion, according to the Congressional Budget office, and $1 trillion, according to the White House, this year.
No decision has been made yet by the Treasury, which first wants to gauge investor in such bonds, Bloomberg reported.
The Treasury had considered bonds with maturities beyond 30 years in spring 2017 but eventually abandoned the idea. At the time the yield on the 30-year Treasury was around 2.9% — well above its current yield.
Another new borrowing vehicle that the Treasury could consider is a one-year floating rate note (FRN) indexed to the Secured Overnight Finance Rate (SOFR). The idea was presented at a recent meeting of the Treasury Borrowing Committee of the Securities Industry and Financial Markets Association, consisting of representatives from investment funds and banks who advise the Treasury on debt management issues, according to the meeting minutes.
A one-year FRN indexed to SOFR, which is expected to replace LIBOR, could help to diversify and reduce the Treasury’s funding costs as short-term rates decline while simultaneously supporting the development of the SOFR issuance market.
The Treasury currently issues a two-year FRN whose interest rate is tied to the 13-week Treasury bill and is reset weekly. The introduction of a one-year SOFR-linked FRN, however, could hurt demand for the two-year FRN and merits further study, according to the committee’s minutes.
The same advisory group has been unenthusiastic about the idea of an extra-long Treasury bond, Bruno Braizinha, director of U.S. rates research at Bank of America, Bloomberg reported.
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