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US Treasury Secretary Mnuchin hints at issuing 100-year bonds

WASHINGTON: The United States has rekindled interest in ultra long-term debt, including possibly a rare century bond, to lock in the current very low borrowing rates.

"I think it's something that we should seriously look at," US Treasury Secretary Steven Mnuchin said.

He said he already has talked to Treasury staff about the possibility, and will discuss the idea with investors and market participants to gauge interest.

This would represent a historic shift in the US$14 trillion (S$19.7 trillion) Treasury debt market, as the longest maturity bond currently is 30 years.

Many countries have 50-year debt, like Italy, France, Spain, Great Britain and Canada, while Mexico, Ireland and Belgium have issued 100-year bonds.

The Treasury under former president Barack Obama considered the idea of taking advantage of the historically low interest rates to issue the ultra long-term debt, but never pulled the trigger, largely due to political considerations, economists say.

The idea "has come up on occasion but hasn't got a great deal of sponsorship in Washington," said Mr Jim Vogel, vice-president of FTN Financial.

"Washington policymakers prefer to give the impression that they will be "retiring debt" rather than creating new instruments to borrow.

Ms Diane Swonk of DS Economics said the long maturities could give the wrong signal.

"It's something you do when you usually issue a lot of debt," she told NPR (National Public Radio).

"Are we talking about a government that wants to signal it's going to go into a lot more debt from record high debt levels?"

LENDING RATE

On the face of it, it makes sense for the government to borrow over the long term at lower cost, before the Federal Reserve raises the benchmark lending rate, as it has signalled it expects to do very soon.

These new bonds "should bring some savings" in debt service costs, Mr Vogel said, and would allow for more borrowing without putting upward pressure on the yields of other popular bonds at the 30-, 10- or five-year maturities.

Economist Laurence Kotlikoff, a professor at Boston University, said: "They have to be inflation indexed.

"That's pretty critical otherwise you take a big bet on what inflation is going to be for the next 50 or 100 years." - AFP

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