U.S. Treasury May Consider Issuing 40/50yr Bond Under Trump: MS
(Bloomberg) -- U.S. Treasury could explore issuing an “ultra-long bond” of around 40 or 50 years if Trump goes ahead with a fiscal stimulus plan, Morgan Stanley strategists led by Matthew Hornbach said in note.
- With the Republican sweep, dynamic between “dwindling sovereign supply” and increasing central bank demand -- a contributor to the “low level of term premium” in global rates markets -- may change, “and perhaps dramatically”
- Introducing longer-term bond is “more effective” way to extend duration without disrupting current issuance schedule
- NOTE: Treasury asked dealers in its Aug. 2014 refunding questionnaire whether it should consider issuing a security with maturity greater than 30 years
- Ultra-long bond may diversify investor base, serve as alternative for investors “reaching for yields through higher credit risk,” extend Treasury’s WAM and “lock in historically low interest rates”
- Can look to Europe as an example, as European sovereigns have issued more than EU16b in 50Y-100Y debt in offerings that were “up to 4 times oversubscribed”
- October: Austria sold EU2b 70Y bonds, EU5b subscribed
- October: Italy sold EU5b 50Y bonds, EU18.5b subscribed
- May: Spain sold EU3b 50Y bonds, EU10.5b subscribed
- April: Belgium sold EU3b 50Y bonds, EU8b subscribed
- April: France sold EU3b 50Y bonds, EU6.75b subscribed
- April: Belgium sold EU100b 100Y bonds in private placement
- March: Ireland sold EU100m 100Y bonds in private placement
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HALISTER1Source: BFW (Bloomberg First Word)
People Matthew Hornbach (Morgan Stanley)
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