Bond Dealers Are Too Conflicted to Advise the Treasury
When it comes to ultra-long debt securities, the U.S. government should ignore the warnings from Wall Street.
U.S. Treasury Secretary Steven Mnuchin wants to sell 50-year bonds.
Photographer: Bloomberg
U.S. Treasury Secretary Steven Mnuchin is again talking about how it might be a good time for the government to issue ultra-long bonds, or those with 50- and 100-year maturities, given that yields are at or near record lows. Whenever the Treasury has brought up this idea in the past, the Wall Street dealers that help make sure that government debt auctions go smoothly have balked, citing concern about a lack of demand. They are likely to do so again, but this time the Treasury should ignore their concerns and plow ahead.
Why have Wall Street dealers generally opposed the government borrowing for very long periods of time, locking in low rates without the risk of refinancing these securities for at least half a century, to the benefit of taxpayers? It first helps to understand how the government borrows.