Mnuchin to Boost Average Debt Maturity; Ultra Long Bonds on Ice

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by confoundedinterest

The US Congress will never stop giving away money in the form of entitlement promises, etc. Just look at USDebtClock.org if you don’t believe me.

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Of course, trying to get politicians to act prudently is out of the question. So the US Treasury has to lower the cost of debt funding. And offer more debt instruments, such as the 20-year security.

(Bloomberg) — U.S. Treasury Secretary Steven Mnuchin said the country’s new 20-year security will extend the average maturity on the government’s debt while adding that ultra-long bonds aren’t coming any time soon. The Treasury yield curve flattened further following his comments.

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Issuing ultra-long bonds, those due in more than 30 years, is “no longer on the near term — our focus for the moment is issuing the 20-year,”Mnuchin said in an interview in Davos, Switzerland, where he’s attending the World Economic Forum (along with Climate Teen Greta Thunberg).

The Treasury Department last week announced it will start issuing 20-year bonds in the first half of 2020, expanding its roster of securities as the government seeks ways to fund a budget deficit that’s set to reach $1 trillion this year.

“If you look at the number of 20-year bonds that we’ll raise, this will slightly extend” the average maturity, he said, declining to predict by how much. “This isn’t going to be a massive extension.”

Lengthening average maturity allows the government to spread risk over a longer period and lock in borrowing costs at the current low level. The average maturity of Treasury debt outstanding is hovering just under 70 months, compared with the average since 1980 of about 60 months. It peaked at 70.7 months in mid-2017.

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Mnuchin’s comments underscore a shift in a policy in place since 2017, when the Treasury Department decided to stop attempting to lengthen the maturity of the government’s debt. In announcing the 2017 change in its borrowing strategy, Treasury officials also appeared to de-emphasize the concept of weighted average maturity as a basis for debt policy, making clear that the focus instead was on getting the best deal for the taxpayer in the long run.

The idea of 50-year or 100-year bonds is on ice for now, but it is something that the Treasury will continue to review and consider, Mnuchin said. Many on Wall Street have lobbied against such tenors.

Ultra-long debt could help limit the cost to taxpayers of plugging the budget shortfall.

“The main purpose is to fund the government at the best risk-adjusted rate,” Mnuchin said.

Ultras on ice? Maybe this is what Mnuchin was thinking about.

Michelob Ultra Bottles in an Ice Bucket

 

 

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