Mnuchin Says Ultra-Long Bond Program Wouldn't Be a One-Off

  • Treasury chief says strong dollar shows economic confidence
  • Trump admin hasn’t taken a decision yet on next Fed chair

U.S. Treasury Secretary Steven Mnuchin talks about protecting national security in allowing foreign investments in the United States and offers his definition of a 'dependable' U.S. dollar. He speaks with Bloomberg's David Gura from the SelectUSA summit on 'Bloomberg Daybreak: Americas.' (Source: Bloomberg)

Treasury Secretary Steven Mnuchin said the U.S. government only intends to introduce ultra-long bonds if there’s an audience for regular issuances of the debt.

“We’re reaching out to the borrowing community and investors to see what the demand is,” Mnuchin said in an interview on Bloomberg Television at an investment conference near Washington on Tuesday. “What we don’t want to do is to create a program that is a completely one-off program. We want to see if it would be an important part of our borrowing capabilities.

Mnuchin in May said that ultra-long bonds “absolutely make sense,” and formed an internal working group to study maturities of 50- and 100-year debt.

The work will be assessed along with feedback from the Treasury Borrowing Advisory Committee, whose members include executives from JPMorgan Chase & Co., Bank of America Corp., Citadel LLC, and Goldman Sachs Group Inc. The group has voiced concern about demand for ultra-long debt, and instead suggested boosting sales of bonds with maturities of 30 years or less.

Mnuchin said the U.S. remains open to attracting foreign investors. An inter-agency panel that screens foreign investments for security risks is an important tool for the purpose it serves, but it won’t be used to make the U.S. more economically competitive, Mnuchin said.

“I favor CFIUS to be for national security,” Mnuchin said in the interview, using the acronym for the Committee on Foreign Investment in the United States. “We welcome foreign investors to invest here. We just want to make sure we get treated the same way abroad.”

While a strong dollar has some negative impacts for U.S. exporters, it’s a barometer on the confidence of investors in the economy under President Donald Trump, Mnuchin said. The Bloomberg Spot Dollar Index has declined 4.3 percent since Trump took office in January. A stronger dollar could complicate Trump’s plan to boost exports and reduce the trade deficit.

Negative Aspects

“There is obviously certainly negative aspects of a strong dollar as it relates to our exports,” Mnuchin said. “But on the other hand a strong dollar is a vote of confidence in the U.S. economy and the Trump administration similarly to what is going on with the stock market.”

The administration hasn’t decided whether Fed Chair Janet Yellen will be re-appointed for a second term in February or someone new will take over the position. Mnuchin said he’s working with White House economic adviser Gary Cohn to make recommendations for Trump.

On the debt ceiling, Mnuchin said the government has enough money to be funded through September if Congress doesn’t raise the borrowing limit sooner. He urged lawmakers to approve an increase in debt limit before they break for five weeks until Sept. 5.

“I think that the Congress should raise the debt ceiling so that we don’t have to talk about prioritization, that’s really the focus,” said Mnuchin, referring to a choice the government would have to make on paying debts as a priority to avoid a default. “We should be paying our bills when they’re due and we shouldn’t put the government at risk.”

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