The US Treasury wants to “refresh its understanding of market appetite” for bonds maturing long after current market participants have “retired” to the actual grave.
After a week that saw 30-year yields in the US plunge below 2% for the first time amid an insatiable bid for duration that swept across global bond markets, Treasury thinks now might be as good a time as any to sound out folks on a possible 50-year tenor and, for good measure, a century bond.
There’s been “no decision on whether to issue such a product”. Rather, the government is merely conducting an “outreach” operation, Treasury said Friday.
This isn’t the first time they’ve floated this. Back in November of 2016, Steve Mnuchin suggested he’d “take a look at everything” when it comes to debt sales. “Everything” included possible 50- or 100-year issuance. Several months later, on May 1, 2017, Mnuchin said ultra-long obligations might “absolutely make sense”. Traders “absolutely” sold, steepening the curve. The Treasury Borrowing Advisory Committee subsequently threw cold water on the idea.
It seems unlikely the notion will be received with anything that approximates enthusiasm this time around either, although with yields plunging and the world’s “duration infatuation” (so to speak) now manifesting itself in all manner of bizarre bond market anomalies, anything is possible.
On Wednesday, ultra-long futures traded limit-up, tripping the circuit breaker in extended hours trading, a testament to just how crazy the action has been of late.
One thing we’ve also learned over the course of the last two years is that century bonds can go gangbusters, or they can go bust. On the former, ask Austria. On the latter, consult Argentina.
(BofA, BBG)
Read more: A Tale Of Two Century Bonds
Sorry Steve, piss off with your dumbass thoughts on ultra long treasuries
May 3, 2017
Letter to the Secretary
Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association
he Committee concluded that the financing gap faced by Treasury in coming years is likely to be too large to address with a heavy concentration of front-end issuance. Such a policy would also imply an undesirable decline in the WAM (weighted average maturity) in response to Fed run-off and higher deficits.
The Committee discussion highlighted that it is simply not a viable strategy to accommodate the magnitude of the potential additional issuance using only front-end instruments. The Fed run-off and potentially higher deficits represent meaningful challenges that would require a sustained shift in borrowing needs to be spread across the curve.
.. The third member then turned to potential issuance mechanics. Emphasis was placed on the Treasury’s debt management goal to be regular and predictable. In that regard, a Committee participant’s survey of market participants did not expect meaningful ultra-long supply. Recent research from the primary dealers in response to Treasury’s outreach questioned whether demand would be significant enough or sustainable to meet Treasury’s regular and predictable issuance pattern.
http://www.lexissecuritiesmosaic.com/gateway/treasury/pr/sm0070.aspx.htm