NEW YORK, April 26 The appetite of U.S. pension
funds for a U.S. government bond that matures as far as out as
100 years may be far less than what some analysts had estimated,
Credit Suisse analysts said on Wednesday.
"On the whole, it isn't clear to us that there's enough
permanent sizable demand that will allow ultra-long Treasuries
to be auctioned on a regular basis," they wrote.
Growing demand from private and public retirement plans is
seen by many analysts as a key factor that could support regular
sales of an ultra-long Treasury bond.
British, Canadian, Japanese and French pensions have been
large holders of their own countries' ultra-long government
U.S. pension funds have a combined "latent" demand for
long-dated bonds, worth more than $3 trillion, so they can earn
enough interest income to meet future payouts to retirees,
according to Credit Suisse strategists Praveen Korapaty, William
Marshall and Jonathan Cohn.
While they face a large investment gap, U.S. pension funds
are unlikely to fill all of it with U.S. government securities.
They may add more stocks and long-dated corporate bonds to
achieve their payout target, rather than relying on ultra-long
Treasuries, the Credit Suisse analysts said.
"As a result, we don’t expect that sizable ultra-long
issuance will be readily absorbed by this 'latent' demand — we
believe much of this anticipated demand is overstated," they
wrote in a research note published on Wednesday.
They also cited accounting and hedging differences between
U.S. pension funds and their overseas counterparts.
The U.S. government's longest maturity is a regular 30-year
issue it auctions each month. It also sells a
30-year Treasury Inflation Protected Security
three times a year.
It sells about $175 billion worth of 30-year bonds annually.
Last week, the Treasury asked the primary dealers about
investor interest in an ultra Treasury bond in its quarterly
Primary dealers are the 23 Wall Street firms that do
business directly with the Federal Reserve. The U.S. central
bank requires them to participate at each Treasury auction to
retain that status.
Credit Suisse is the latest primary dealer to raise doubts
about the viability of introducing an ultra-long bond.
(Reporting by Richard Leong)