Many homeowners think it makes intuitive sense to lock in today's low interest rates for as long as they can. A few corporations also have obtained very-long-term financing, with Norfolk Southern issuing a 100-year bond in 2010.
Why shouldn't Uncle Sam do the same? You'd think the world's most voracious borrower might want to lock in money for 50 or 100 years, especially since there's little chance we'll be paying down the national debt anytime soon.
Treasury Secretary Steven Mnuchin is keen on the idea. He mentioned it in November, and said last week that ultra-long borrowing "absolutely makes sense."
Mnuchin's buddies on Wall Street aren't so enthusiastic. A Treasury advisory committee, composed of 16 senior executives of investment firms, issued a letter describing "little evidence of strong or sustainable demand for ultra-longs in the U.S. markets."
Pension funds and insurance companies, the committee said, have little appetite for anything beyond 30 years, the longest bond the Treasury now issues.
Brian Rehling, co-head of fixed-income strategy at Wells Fargo Investment Institute, figures any move to issue 50-year bonds will be more symbolic than substantial.
"There is some demand out there, but I don't know that there is a tremendous amount of demand," Rehling said. "They could get some nice headlines out of it, but they can't do it in a size that would be likely to move the needle."
Budget considerations are paramount in Washington, and a move to issue 50-year debt would cost more in the short run. That's because of the term premium: The longer the bond, the higher the interest rate.
The 30-year bond yields 3 percent today; replacing some of them with 50-year bonds might cost somewhere between 3.1 percent and 3.5 percent. "In the near term, those extra costs make your budget numbers look not quite as good," Rehling said. "That's why the government issues largely short-term debt, because it's the cheapest."
In fact, roughly half of all marketable Treasury securities mature in three years or less. By contrast, countries including Canada, Britain and France have issued 50-year bonds. Ireland and Belgium sold 100-year bonds last year.
The only way those nations will look foolish is if rates fall further and stay low for decades. If you buy the secular stagnation theory that is being touted by some economists, including former Treasury Secretary Lawrence Summers, that's a real possibility.
The homeowner with an adjustable-rate mortgage, in fact, has made a good bet over the last few years. Thirty-year borrowers bought peace of mind, but at the cost of higher monthly payments.
Advocates of ultra-long Treasury bonds essentially are saying that taxpayers could use some peace of mind, too.
"They should be locking in rates before they rise," says Richard Ryffel, senior lecturer in finance at Washington University in St. Louis' Olin Business School. "It makes infinite sense."
Ryffel, who has advised state and local governments on bond issues, says he would be telling such borrowers now to "go as long as possible, because interest rates are low and you want to limit your risk."
That seems to be Mnuchin's message too. After getting a cool reception from Wall Street, though, the Treasury secretary may be limited to issuing a small, symbolic amount of 50-year bonds and hoping for the best.
