Mnuchin Says Ultra-Long U.S. Bonds Can Absolutely Make Sense

  • Treasury raises April-June borrowing estimate by $25 billion
  • Infrastructure investment won’t balloon deficit, says Mnuchin

Mnuchin Says Ultra-Long Bonds Could Make Sense

Treasury Secretary Steven Mnuchin said the first ultra-long bond issuance could “absolutely” make sense to help finance the U.S. government, while indicating he’d be reluctant to swell the federal budget deficit to pay for planned infrastructure investment.

Issuing longer-dated bonds “is something we’re considering at Treasury. We have a working group looking at it,” Mnuchin said in an interview on Bloomberg Television on Monday in Los Angeles. ‘‘We think that it’s something that could absolutely make sense for us at Treasury.”

Mnuchin comments on the possible introduction of ultra-long bonds.

Source: Bloomberg

Following Mnuchin’s comments, yields on longer-term Treasuries jumped, with those on the 30-year bond rising by the most since Jan. 18, reaching 3.02 percent.

While the Treasury Department under President Barack Obama explored the idea of issuing Treasuries beyond the current 30-year limit, Mnuchin’s comments suggest the Trump administration is more seriously considering the idea.

The Treasury may drop further hints this week while announcing its plans for auctioning long-term notes and bonds in the current quarter. The Treasury on Monday raised its April-through-June borrowing estimate to $26 billion from a previous projection of $1 billion.

The Treasury issues coupon-bearing debt with maturities ranging from two to 30 years. Other countries have opted to sell bonds due in more than three decades -- Spain, Belgium and France issued 50-year bonds in 2016.

In the interview, Mnuchin called a bipartisan deal on a $1.1 trillion spending bill announced early Monday morning as “important to keep the government open” and said the focus has shifted to next year’s budget to get what the Trump administration really wants done. The government is looking at public-private partnerships as a means to finance President Donald Trump’s plans to build and upgrade infrastructure, Mnuchin said.

“On the infrastructure side, the president is determined that we make a major investment,” he said. “There’s a huge part of the infrastructure that needs to be rebuilt, and we’re going to do that in a lot of different ways through public-private partnerships, and different financing, so we don’t balloon the budget by a trillion dollars.”

Tax Reform

Speaking earlier at an event during the Milken Institute Global Conference, Mnuchin said plans to overhaul of the tax system, offer regulatory “relief” and improve the terms of trade deals will help produce 3 percent U.S. economic growth that can be sustained.

Returning health in the U.S. job market, a rise in stock prices since Trump’s election in November and consumer sentiment at the highest in 16 years are painting an optimistic picture of the economy. Even so, the economy expanded at its slowest pace in three years at 0.7 percent in the first quarter -- underlining the challenges in regaining momentum.

The Trump administration has placed an overhaul of the tax system -- describing it as the biggest reform in history -- at the top of its legislative agenda. A blueprint released last week includes proposals to slash taxes for business and individuals, simplify the system for filers and close loopholes for the rich, relying on faster economic growth to offset lost revenue. The tax-reform package is “our version” of a job creation bill, Mnuchin said.

The difference between 2 percent and 3 percent annual growth can generate $2 trillion in revenue over about 10 years, he said. Plans for regulatory “relief” and re-examining trade deals that aren’t fair to the U.S. will also stoke growth, Mnuchin added.

The International Monetary Fund forecasts the U.S. economy will expand at 2.3 percent this year and 2.5 percent in 2018.

— With assistance by Emma Chandra, and Liz McCormick

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