MNI EXCLUSIVE: Ex-TBAC Members Doubt Ultra-Long Bond Appetite

By Evan Ryser

     WASHINGTON (MNI) - The Trump administration's plans for a first issuance of

50-year bonds next year may founder due to low investor appetite, former

Treasury Borrowing Advisory Committee members told MNI.

     Treasury Secretary Steven Mnuchin said in a New York Times interview

Thursday, "We are going to start with 50-years, and if the answer is, 50-years

is successful, we'll consider 100-year bonds."

     However, key industry advisers aren't convinced that ultra-long bonds are

feasible or would be met with sufficient demand. TBAC, a 15-member body

comprised of representatives from large financial institutions and broker

dealers, voted unanimously against ultra-long bonds in May 2017 -- the last time

Treasury seriously considered the possibility.

     Though roughly a third of members initially voiced support for the

security, they joined with the majority in the end for a unanimous vote, and

recorded in the minutes that TBAC found "little evidence of strong or

sustainable demand for ultra-longs in the U.S. markets."

     --REACH FOR YIELD

     When TBAC gathers again at the end of October, they will revisit the

prospects for the bond at a time of falling interest rates and historically high

deficits.

     Ultra-long bonds may see greater demand as investors push out along the

curve in search of return in a world with little yield. With the U.S deficit

topping $1 trillion for the first time in August, Treasury is looking to lock in

borrowing at low rates.

     However, former members of TBAC expressed concern that the Treasury's debt

management strategy could move away from its "regular and predictable" schedule.

While they note that the 50-year issuances could be put on a regular schedule

the evidence for demand beyond the first several months of issuances is unclear.

     Mnuchin said Thursday the Treasury believes "there is some demand for it."

Mnuchin added, "We are also looking at extending the weighted average maturity

of the Treasury's borrowing to de-risk this for the U.S. people."

     --YIELD CURVE DISTORTION

     Former TBAC members also expressed concern about how longer points on the

Treasury yield curve would continue to serve as a benchmark for corporates and

other sovereign bonds.

     If 50-year bonds were not well supported with frequent and meaningful

issuances then there could be concerns about having a point on the yield curve

that proved inconsistent -- not offering the same risk transfer and measurement

methodologies -- with the shorter points on the curve.

     "We're going to look at what would be the spread of the 50-year to the

30-year and we would only issue if we thought we could do it at an appropriate

spread," Mnuchin said. "It is not on the table for this year, but it is

something very seriously on the table we're looking at doing next year."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MT$$$$,MX$$$$,MFU$$$,MGU$$$]