Researchers at the Federal Reserve Bank of San Francisco, one of the 12 regional central bank entities, support a 50-year Treasury bond, saying such longer-term debt instruments could offer an opportunity interesting to finance the country’s growing debt in a sustainable manner.
The longer-term Treasury bond that investors can currently buy matures in 30 years TMUBMUSD30Y,
But with the US deficit expected to remain high for years to come, sustainable ways to finance debt are needed, the researchers said. The total outstanding negotiable debt of the Treasury reached $ 21 trillion at the end of 2020, after increasing by almost 25% in a single year from $ 16.7 trillion at the end of 2019.
A 50-year US bond has been under consideration for years. Former Treasury Secretary Steven Mnuchin intended to consider such a duration in 2020, but abandoned the plan in March of the same year due to lack of interest. Janet Yellen revived the subject earlier this year during her Senate confirmation hearing to become Secretary of the Treasury. Yellen is the former head of the San Francisco Fed, who served as its chairman from 2004 to 2010, as well as the former Federal Reserve chairman before Jerome Powell.
San Francisco Fed researchers analyzed other countries that already issue longer maturities and said they found that the additional costs of introducing 50-year bonds over conventional 30-year bonds are likely to be low, on average.
“The results suggest that the additional cost to the Treasury of issuing longer-dated bonds would be small, similar to the experience of some other countries,” according to an economic letter published on Monday. The paper was written by San Francisco Fed research adviser Jens HE Christensen, as well as Vice President Jose A. Lopez and Paul L. Mussche, senior quantitative risk specialist. Lopez and Mussche are both part of the bank’s financial and credit supervision.
The results “suggest that extending the maximum maturity of US debt could be a profitable complement to the issuance of conventional 30-year bonds which could open up a new sustainable option to help finance the national debt,” said they wrote.
On Monday, Treasury yields rose across the curve, with the 10-year rate TMUBMUSD10Y,
rising to 1.49% and 30-year rate TMUBMUSD30Y,
climbing to 1.89% like the three main DJIA stock indices,