What Would It Cost to Issue 50-year Treasury Bonds in US?

India already has a 40 year government bond but in US longest tenure of bonds is 30 years.

Jens H.E. Christensen, Jose A. Lopez, and Paul L. Mussche in this FRBSF research evaluate the costs of a US 50 year bond:

The longest-term U.S. Treasury bonds that investors can buy mature in 30 years. Some other countries offer up to 50-year government bonds. Examining these foreign bond markets and extrapolating U.S. Treasury yields to evaluate such longer-term options suggests that the extra costs of introducing 50-year bonds relative to conventional 30-year bonds are likely to be small on average. Because the U.S. fiscal deficit remains substantial, such longer-term debt instruments could provide an attractive opportunity to finance the growing debt in a sustainable way.

There is an interesting comparison of yields of 50 year bonds in select countries.

Figure 1 shows par yield spreads for our international bond data. For accuracy, we only report data for the period since the first 50-year bond was issued, which determines the start date of the series for each country in the figure. Because of the small yield increments, we discuss the data in term of “basis points,” which are hundredths of a percentage point.

Figure 1
International yield spreads of 50-year over 30-year bonds

International yield spreads of 50-year over 30-year bonds

This cost measure implied by the Austrian data (green line) starting in 2012 averages 12 basis points with a mild upward trend that leaves it close to 20 basis points by the end of 2020. For the French data (blue line) starting in 2005, the cost measure averages 6 basis points with a mild upward trend that leaves it close to 10 basis points by the end of 2020. The cost measure based on French bond data is highly correlated with the series implied by the Austrian bond data, with an 88% correlation for the overlapping period since 2012. This suggests that long-term bonds are priced very similarly across core government bond markets in the euro area.

The Swiss data (red line) show a clear downward trend in our synthetic cost measure. It starts out above 30 basis points in 1999 and ends below –10 basis points by the end of 2020. For the entire period since 1999, it averages 4 basis points. Thus, the Swiss government appears to face almost no tradeoff in pricing between issuing 30-year and 50-year bonds.

Finally, similar to the Swiss results, the U.K. cost measure (gold line) is mostly negative, meaning that the U.K. government has generally been able to issue 50-year bonds at yields below those of newly issued 30-year bonds. Indeed, our U.K. measure has averaged –15 basis points since the first 50-year bond was issued in 2005. Consequently, issuing even more very long-term debt could benefit the U.K. government.

Hmm…As the authors argue there is not much cost difference between a 30 year vs a 50 year old bond in these select economies..


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: