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When long bond isn’t the longest

By Dr. Don Taylor ·
Monday, August 4, 2014
Posted: 6 am ET

© larry1235/Shutterstock.comThe 30-year U.S. Treasury bond is called the long bond, because it is the longest maturity the Treasury issues. Treasury securities with a maturity of a year or less are Treasury bills; maturities longer than a year up to 10 years are Treasury notes, and anything longer are Treasury bonds.

A friend of mine used to call me up and ask me what the yield was on the 10-year Treasury bill. He'd get upset with me when I told him I couldn't because the Treasury doesn't issue 10-year bills.

The U.S. Treasury is considering adding a new maturity to its offering of Treasury securities. Reported in Reuters and The Wall Street Journal, the Treasury is polling its primary dealers to gauge interest in a longer dated bond, potentially a 50-year maturity.

It looks like the U.S. is late to the party. The U.K. got back into the 50-year market in May 2005 after not issuing that maturity for 45 years. France beat it to the punch by issuing 50-year euro denominated bonds in February 2005. Canada started issuing a 50-year bond in 2014. Mexico issued a 100-year bond in 2014 denominated in British pounds.

From the U.S. government's perspective, it makes perfect sense. As I write this, the total debt outstanding of the U.S. government is $17,613,901,518,929.04 or about $18 trillion. We're going to need to borrow to finance this debt for a very long time. Why not finance part of it with 50-year debt at a time when interest rates are very low?

From an investor's perspective it's a harder decision to buy 50-year debt at these low levels. When interest rates go up, bond prices go down, and the price volatility in a 50-year bond would be huge. That's great for traders and speculators, not so good for investors when yields finally start to rise. It gives a new twist to being long and wrong, when an investor buys a long dated bond only to see yields rise and prices fall.

Will Wall Street need a new nickname for the 30-year Treasury if it issues a 50-year bond, or can it just call a 50-year the "long-long bond"?

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