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Wall Street voices doubts about U.S. ultra-long bond
April 21, 2017 / 7:59 PM / 8 months ago

Wall Street voices doubts about U.S. ultra-long bond

NEW YORK, April 21 (Reuters) - Wall Street firms said the federal government was unlikely to soon introduce a bond that matures as far as out as 100 years, raising doubts as the Treasury Department asked about the potential demand for an ultra-long Treasury security.

Some firms said this week that they were concerned about whether there is a big enough audience for ultra-long bonds and how willing primary dealers would be to hold that type of government debt to provide liquidity to investors.

“We think the Treasury is unlikely to introduce ultra-long issuance,” Goldman Sachs David Mericle, senior economist at Goldman Sachs, one of the 23 U.S. primary dealers, wrote in a research note on Friday.

Primary dealers are required by the Federal Reserve to participate at each Treasury auction in order retain their status to do business directly with the U.S. central bank.

Britain, Canada, Japan and France have been selling ultra-long bonds to growing demand from insurers, pension funds and other long-term asset managers, analysts said.

The U.S. government’s longest maturity is a 30-year issue it auctions each month. An ultra-long bond could help the government lock in historically low long-term borrowing costs.

The Treasury this week asked the primary dealers about investor interest in an ultra Treasury bond in its quarterly refunding questionnaire.

Nomura Securities International, a primary dealer, said that a 50-year bond is the maximum maturity it recommends to the Treasury “given the unique U.S. landscape.”

It also recommended in a research note on Friday that the Treasury should issue no more than $50 billion in ultra-long bonds at the start of the program.

A 50-year bond would yield 15 basis to 25 basis points more than a 30-year bond whose yield was 2.89 percent on Friday, analysts said.

Analysts at Societe Generale, another primary dealer, said in a note on Thursday that an ultra-long bond “poses a risk if investor demand does not materialise ... and ultimately pose an additional cost to tax payers.”

Goldman’s Mericle cited other factors that may stop the Treasury from launching an ultra-long bond.

Such a bond would go against the Treasury’s long-standing principle of regular and predictable issuance, while the White House’s motivation to sell such bonds appears linked to funding a large infrastructure program “that we think is unlikely to materialize,” Mericle said. (Reporting by Richard Leong; Editing by Meredith Mazzilli)

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