ADVERTISEMENT

Mnuchin’s Bond Advisers Poised to Give Ultra-Longs Thumbs Down

Mnuchin’s Bond Advisers Poised to Give Ultra-Longs Thumbs Down

(Bloomberg) -- The elite bond market group that advises Treasury Secretary Steven Mnuchin on how best to manage America’s finances is likely to caution against his idea of reviving a plan to sell bonds maturing in 50 or 100 years.

Mnuchin told Bloomberg News Wednesday that adding to the Treasury’s arsenal of debt beyond the current maximum of 30 years was “under very serious consideration.” The idea was turned down in the past by the Treasury Borrowing Advisory Committee, the body that helps guide him, and their views on the matter haven’t changed since then, according to people familiar with their current and past thinking. The committee is likely to double down on past counsel that such sales wouldn’t be sustainable in a consistent fashion over the long term when Treasury debt managers gather next in October, the people said.

Mnuchin’s Bond Advisers Poised to Give Ultra-Longs Thumbs Down

“The views TBAC presented in May 2017 regarding the debatable benefits of the U.S. selling 50- or 100-year remain true today because it emphasizes Treasury’s goal to have issuance be regular and predictable over time,” said Jason Cummins, who was TBAC chair in 2017 and is now chief U.S. economist at hedge fund Brevan Howard Asset Management.

While Mnuchin isn’t bound by TBAC’s recommendation, he shelved a similar plan floated early in his tenure as head of Treasury under President Donald Trump after a cold reception from Wall Street investors and Treasury advisers.

In a letter to Mnuchin in May 2017, Cummins detailed that the committee had found -- in response to Treasury’s request to investigate the viability of ultra-long bonds -- that they didn’t see value in such securities. Cummins, no longer a TBAC member, says that view still holds true.

Regular and Predictable

Even as appetite for long-term debt has pushed 30-year Treasury yields to record lows, it hasn’t changed the findings in TBAC’s 2017 analysis that demand for 50- or 100-year bonds wouldn’t be consistent enough over time to allow for regular and predictable issuance, according to a person familiar with TBAC’s current views who was in attendance at the May 2017 meeting. Given that the yields are driven by doubt that the Federal Reserve’s actions will bolster growth and inflation, and not because of new sources of demand for ultra-long debt, TBAC’s concerns remain, the person said.

TBAC and Treasury have not convened since they last met in July, according to three people familiar with the gatherings. They are slated to meet next with Treasury in the days just ahead of the government’s Oct. 30 announcement of its quarterly debt sales.

While some European countries have taken advantage of negative yields on much of the continent’s debt to sell bonds out to 100 years and lock in historically low rates, the U.S. has refrained so far. That’s mainly because regular and predictable auctions have been a pillar of the Treasury’s debt management since the 1970s, and a key reason the U.S. bond market has become the deepest and most important in the world.

Daleep Singh, who served as Treasury acting assistant secretary for financial markets under Jack Lew, in 2016 raised doubt there would be consistent demand for super long-term debt beyond initial sales. He hasn’t changed his views either.

“On protecting the taxpayer, can new 50- or 100-year instruments accomplish anything existing instruments 30-years cannot?,” Singh said. “I’m skeptical.”

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Jenny Paris, Elizabeth Stanton

©2019 Bloomberg L.P.