Halister News

(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