Mnuchin says the Treasury is ‘seriously considering’ issuing a 50-year bond next year

  • The U.S. is “seriously considering” issuing a 50-year bond next year, Treasury Secretary Steven Mnuchin tells CNBC.
  • His comments come the day after President Trump said the U.S. should consider “refinancing” its $22.5 trillion debt load.

The U.S. could be issuing 50-year bonds as soon as next year as the government looks for cheaper and longer-term ways to finance its burgeoning debt load, Treasury Secretary Steven Mnuchin told CNBC on Thursday.

“This is something I have talked about over the last two years, it is something we are very seriously considering,” he said on “Squawk Box.” “We’re looking at issuing a 50-year bond, what we could call an ultra-long bond. We think there is some demand for it. It is something we’ll very seriously consider for next year.”

Mnunchin’s comments come a day after President Donald Trump tweeted that he thinks the U.S. should look at “refinancing” its debt load, which has recently eclipsed the $22.5 trillion mark. Government bond yields moved lower as Mnuchin spoke.

Though it’s unlikely the government could engage in that process the way a homeowner would refinance a mortgage, Treasury could extend the maturity of the debt by issuing longer-term bonds. The longest duration the government has now is the 30-year bond.

More than a dozen other developed countries have issued “ultra” bonds of durations from 40 to 100 years. Canada issued a 50-year bond in 2014 while Mexico, Belgium and Ireland have offered 100-year debt in recent years. Multiple companies also have issued 100-year bonds.

One of the objectives for the U.S. would be to widen credit spreads. That might help revert a trend in which some short-term government debt is yielding more than longer-duration notes, a phenomenon called an inverted yield curve that has been a reliable recession indicator over the past 50 years.

“We would do this in a way that if there is demand it’s something that we would meet. I personally think it would be a good thing to expand the U.S.’ borrowing capabilities,” Mnuchin said. “I would say it’s obviously quite attractive for us to extend and derisk the U.S. Treasury borrowing. So we’re also looking at extending the weighted average maturity of the Treasury borrowing to derisk this for the U.S. people.”

As Mnuchin spoke to CNBC, Trump weighed in again on his desire for a weaker dollar and renewed his continuing criticisms of the Federal Reserve.

The president was referring to the European Central Bank’s move to cut its benchmark interest rate and to restart its asset purchasing program. The ECB doesn’t actually “get paid to borrow money” as Trump stated, though its bonds are now trading at a strong premium, which translates to a technically negative rate.

Mnuchin said he was “not surprised” at the ECB decision but cautioned against negative rates, a stance that would seem at odds with a Trump tweet Wednesday in which he said the Fed should consider rates at “zero or less.” Mnuchin said negative rates for ECB bonds are “concerning” for the euro zone, adding that negative rates also hurt banks.

“If banks can’t make money, it’s hard to have a good economy,” the former Goldman Sachs executive said.

“I wouldn’t be surprised if a lot of people started selling foreign bonds at negative rates and buying U.S. Treasurys, which would have the impact of narrowing [yield] spreads,” Mnuchin added.