The term premium to hold long bonds is in negative and lowest since JFK era.
Barry Ritholtz makes a case for US issuing 50 year treasuries. One can always debate pros and cons of ultra low rates. But the least US govt could have done is to take advantage of these low rates and issue much longer term bonds. Currently it stops at 30 years whereas so many countries have issued 50 year ones:
Let’s imagine a nation with the following characteristics:
- large but not unmanageable amounts of long-term debt
- a very high credit rating
- low or even negative interest rates
- a stable but slow-growing economy
- deteriorating and outdated infrastructure
- an aging population that entails rising health-care and retirement spending, and
- a tremendous demand for fixed-income securities, the longer the maturity the better.
Don’t leap to the conclusion that the nation is the U.S.; if it were, I would have had to add a bullet point describing it as having a dysfunctional government paralyzed by partisanship.
But regardless of the nation in question, the appropriate approach to financing this debt suggests a long-term bond — whether with a 30-year or even 50-year maturity.
What country does the above describe? It could be any of the following:
All of them now finance some portion of their debt with 50-year bonds; Ireland and Belgium are even offering 100-year bonds, as isMexico. And 100-year mortgages have been around in Japan since the 1990s. More and more companies have been issuing 100-year bonds as well.
Which raises the obvious question: Why isn’t the U.S. selling Treasuries with longer maturities while it tries to get its fiscal house in order?
It looks like a sitting duck…