EC 100 Year Bonds In The Trump Era

The United States does not currently issue bonds with maturities longer than 30 years, but the idea of super long-dated national debt is back in the air. Long-dated, as in bonds due in 100 years. One reason 100-year bonds are kind of neat is that nobody alive right now ever needs to worry about paying the principal back.

Setting snark to the side (for just a moment), Treasury Secretary Steve Mnuchin, in an interview in December, appeared open to the idea of 50-year or 100-year bonds, floated by financial newspaper Barron’s back in November 2016.

Barron’s followed up in February with the report that Mnuchin asked his staff at the Treasury department to look into the pros and cons of 100-year debt.

Some of the best reasons for the United States to issue 100-year bonds fit reasonable, prudential, debt-management principles. Other reasons facilitate wackier scenarios. I’ll describe both.

But first, who would buy 100-year bonds from the United States? Buyers are not typically individuals like you and me, but rather institutions that have to make payouts far in the future.

Barbara Mckenna, Managing Principal of Longfellow Investment Management Co, a Boston-based firm managing over $9 billion in assets, noted to me last week that buyers of ultra long-dated bonds tend to be pension funds and life insurance companies, institutions which need assets to match their liabilities, stretching into the future for many decades.

These were the buyers for Austria’s 70-year debt issued in late 2016 at a rate of 1.53 percent. Ireland and Belgium both issued 100-year bonds earlier in 2016 presumably to that type of buyer as well, both reportedly with a 2.3 percent coupon.

“Feed the ducks while they’re quacking,” we’d often say in my old bond salesman days, when we issued new debt. There’s an element of that to justify the US issuing 100-year bonds. Right now, the pension funds and insurance company ducks would happily quack for extremely long-dated US Treasuries, so we might as well satisfy their hunger.