The Treasury is studying the possibility of issuing 50- and 100-year bonds, taking advantage of current low interest rates and potentially turning the 30-year long bond into a relative youngster.
The idea was raised by Treasury Secretary Steven Mnuchin in an interview Thursday on CNBC, echoing an earlier comment he made when newly nominated by President Donald Trump. Traders say the idea would be to help the government's future debt payments by securing current low interest rates.
"I think it's something we should seriously look at. I've already begun to talk to the staff about looking at that. We'll reach out to the market, investors, different people, but I think it's something that is a very serious issue of whether we should explore whether we can raise 50- or 100-year money at a very slight premium. That's something that makes sense for Treasury to look at," said Mnuchin.
Other countries have issued long-duration debt, including Canada which has a 50-year bond and Ireland and Mexico, both with 100-year bonds.
"We're not ready to make any formal announcement on whether we're going to have a 50-year or 100-year," said Mnuchin.
Traders say the Treasury would be unlikely to regularly issue such debt, but may use longer-duration bonds to capture current low interest rates. Rumors circulated in the bond market Wednesday that Mnuchin would announce a new long-dated bond.
"Long-dated debt around the world is not issued regularly," said Tom Simons, money market economist at Jefferies. "They've looked at it in the past. It would be interesting to know if fresh faces have a new opinion on it."
Justin Lederer, interest rate strategist at Cantor Fitzgerald, said there was a slight reaction to Mnuchin's comments in the longer end of the Treasury market, but it was negligible. He said longer-dated Treasurys would find buyers among insurers and others.
"I think pension funds would be buying them, the people who need those longer maturities. It would be hard to price it right now because there are some that trade at a discount and some that trade at a premium to the 30-year," he said. "My guess would be maybe the long end cheapens a little bit if something was going to be announced, but there would be good demand."