Treasury Offers New Bond

The U.S. Treasury Building in Washington, D.C.( (Flickr)

The Treasury announced on January 16 that it will reintroduce the 20-year bond into the market for the first half of 2020 to account for budget deficits, which have recently surpassed $1 trillion for the first time since 2012.

Treasury Secretary Steven Mnuchin had been considering potential products to introduce into the market since 2017 as part of President Donald Trump’s efforts to “refinance” U.S. debt. In late 2017, Trump issued corporate tax cuts and tax reform, decreasing government revenues. In addition, the budget deficit ballooned to over $1 trillion in 2019. In the next year, the government must pay back some of this debt. While the U.S. has enough to finance itself through 2020, introducing this 20-year bond will allow it to meet future deficit needs.

Mnuchin stated that the goal is to finance the government at the least cost to taxpayers.

This is the first time the 20-year bond has been introduced since 1986. While the Treasury had considered other options such as 50-year bonds, 100-year bonds, and floating-rate notes linked to the Secured Overnight Financing Rate, it ultimately decided to issue the 20-year bond. The Treasury settled on the 20-year bond because it believes that there will be strong demand from investors, which would fulfill its goal of “financ[ing] the government at the least possible cost to taxpayers over time,” according to Mnuchin.

As a result of introducing the 20-year bond, the demand for other existing bonds—like shorter two-year bonds and longer ten-year and 30-year bonds—may decrease. The U.S. may even issue fewer ten-year and 30-year bonds as a result of the new 20-year bond offering.

Michael Schumacher, a rates strategist at Wells Fargo, says the bonds are popular. “We’re fans of this.”