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What’s the appeal of the “century bond”?

Tracey Samuelson Aug 29, 2019
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The U.S. Treasury Department is mulling the idea of selling government bonds with ultralong maturity dates, meaning investors would sign up to loan the government money for 50 or even 100 years. Some other countries and companies have tried it, but the longest maturity for U.S. government bonds is currently 30 years.

Cheaper borrowing

The yield on 30-year bonds right now is around the lowest it’s ever been, so it makes sense for the Treasury Department to see if it could lock in those rates for as long as possible, said Andrew Hollenhorst, chief U.S. economist for Citigroup.

“The Treasury’s mandate, among other things, is to fund the government at the lowest possible cost,” he said.

Other countries, including Austria and Argentina, have already issued some ultralong bonds, but Hollenhorst said the Treasury Department would probably only move forward if it thought it could sell them regularly.

Customers and demand

Therefore, the big questions are: Who would buy these bonds, and how much demand would there be for them?

Marilyn Cohen, CEO of Envision Capital Management, said these bonds don’t make sense for individual investors, but they make “tons of sense for anybody like a pension fund, like an insurance fund, in which they know they have to pay off obligations that are locked and loaded and due in another 50 years or another hundred years.”

The demand question is harder to answer, said Torsten Slok, chief economist at Deutsche Bank.

“The risk, of course, is that the U.S. government goes out and issues a lot of 50- or 100-year bonds. And if you issue [more] than there’s demand for, you run the risk that the interest rates will be a lot higher.”

He said that demand uncertainty may be why the Treasury Department hasn’t moved forward with this idea when it explored it in the past.