Mnuchin Says He’ll Consider Longer Maturities at Treasury

  • ‘We’ll take a look at everything,’ he says on debt management
  • Yellen has done a good job, he says in CNBC interview

Trump Picks Mnuchin for Treasury, Ross for Commerce

Steven Mnuchin, President-elect Donald Trump’s pick for U.S. Treasury secretary, said he’ll explore issuing debt maturing in more than 30 years to cushion the effect of rising interest rates, signaling incoming officials may be open to ideas that the current administration has been unwilling to implement.

“Interest rates are going to stay relatively low for the next couple of years,” Mnuchin said Wednesday in an interview on CNBC. Among other initiatives, “we’ll look at potentially extending the maturity of the debt, because eventually we are going to have higher interest rates, and that’s something that this country is going to need to deal with.”

Asked if he would consider maturities as long as 50 years or 100 years, Mnuchin said: “We’ll take a look at everything.”

Even as Treasury officials have focused on extending the average maturity of U.S. debt holdings since the financial crisis to lock in historically low rates, they haven’t been willing to introduce securities with maturities beyond the current maximum of 30 years. Given their goal of keeping issuance regular and predictable in the $13.8 trillion Treasuries market, policy makers have been reluctant to join countries such as Belgium, Canada, France and the U.K. that have issued debt coming due in as long as 100 years.

With a new administration, “there is a lot of new personnel at Treasury, and so ideas that we had thought were dead in the water for a long time may start to come back,” said Tom Simons, a senior economist at Jefferies LLC in New York. “Long-term debt issuance certainly is one of them. Especially if the budget deficit is going to blow out due to infrastructure projects and loose tax policy this would make a lot of sense.”

Priorities Outlined

Mnuchin, appearing with Trump’s Commerce secretary pick, Wilbur Ross, outlined his priorities for the Treasury role, including tax cuts to boost economic growth, regulations to encourage bank lending and determining whether to label China a currency manipulator.

The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure. His proposals would boost the nation’s debt by $5.3 trillion, the nonpartisan Committee for a Responsible Federal Budget estimated.

Yields on benchmark 10-year notes are close to the highest level this year, after surging this month as Trump’s pledges fueled bets on quicker economic growth and inflation.

In recent years, the Treasury has discussed the potential issuance of ultralong-term obligations at its quarterly gatherings with dealers ahead of debt sales.

Senator Mark Warner, a Virginia Democrat and the ranking member of the securities, insurance, and investment subcommittee of the Banking Committee, pushed Treasury Counselor Antonio Weiss on the topic of selling ultralong-term debt in an April hearing.

“There are some limitations to how quickly that can be done,” Weiss said. “They stem from the regular and predictable need for issuance, but also the fact that our deficit has come down so dramatically,” reducing issuance needs.

Yet federal deficits are starting to worsen. The shortfall widened in the fiscal year that ended Sept. 30, marking the first time it increased relative to U.S. economic output since 2009. The Congressional Budget Office, even without factoring in Trump’s spending plans, forecasts deficits will swell over the coming decade as increased outlays for entitlements and interest expenses exceed revenue.

Mnuchin also said Federal Reserve Chair Janet Yellen has done a “good job,” adding that a priority of the administration will be to fill the two vacancies on the Fed’s Board of Governors.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE