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Treasury Studying Ultra-Longs; Committee Sees Limited Demand

The Treasury asked members of TBAC to comment on demand and structure of 50- and 100-year bonds.

By Liz Capo McCormick and Saleha Mohsin

(Bloomberg) --The U.S. Treasury is studying the “costs and benefits” of ultra-long bonds, as a group of professionals from investment funds and banks that the department put in place to offer recommendations said it prefers boosting sales of debt with maturities of 30 years or less.

Treasury Secretary Steven Mnuchin put in place an internal working group to study ultra-long bonds, a department official told reporters Wednesday. The government will combine that work with feedback from the Borrowing Advisory Committee, known as TBAC, and dealers to assess the sale.

Mnuchin said Monday on Bloomberg Television that the start of ultra-long bond issuance could “absolutely” make sense to help finance the U.S. government, an idea also backed by  Gary Cohn, the top economic adviser in the White House. Mnuchin and his staff met with the borrowing committee the following day to discuss that and other matters during their standard gatherings before the refunding, the department official said.

The Treasury asked members of TBAC to comment on demand and structure of 50- and 100-year bonds, according to documents released by the department in Washington. The committee said it doesn’t see evidence of “notably strong or sustainable demand” for ultra-long bonds, adding however that issuing more longer-term debt could make sense if Treasury wanted to raise its borrowing capacity.

To reach that objective, and given Treasury’s focus on regular and predictable debt issuance, the committee advised the possible return of a 20-year bond as well as increased sales of 10- and 30-year bonds. The committee advised the debt-management office to continue studying issuance of bonds with maturities of 40 or 50 years, adding “the 100-year bond is not worth considering.”

The Treasury said the Federal Reserve’s potential decision to shrink its balance sheet “could affect Treasury’s net marketable borrowing from the public over the coming year.” The department would likely need to increase borrowing from the public, probably starting with more bills before moving on to longer-term debt, the official said.

Debt Limit

The Treasury also said Wednesday it will ill maintain at $62 billion the issuance of longer-term debt for the sixth straight quarter.

The department will sell $24 billion in three-year notes on May 9, $23 billion in 10-year notes on May 10 and $15 billion in 30-year bonds on May 11, it said in its quarterly refunding announcement of longer-term debt sales. The auctions will raise about $12.3 billion in new cash, it said. The Treasury plans to target a cash balance at $200 billion over the quarter. This cash buffer was $273 billion as of April 28.

The department has been using extraordinary accounting measures to continue to meet its financing needs and stay under the debt-limit since its previous suspension expired in March. Most analysts project the Treasury can continue with these measures before hitting the federal debt limit, which is set by Congress, until the October-November period -- at which point Congress must either lift it or suspend it again.

In a statement Wednesday, the department said the extraordinary measures will be exhausted “sometime in the second half of 2017” and urged Congress to protect the full faith and credit of the U.S. by raising the cap or suspending it as soon as possible.

--With assistance from Alexandra Harris.To contact the reporters on this story: Liz Capo McCormick in New York at [email protected] ;Saleha Mohsin in Washington at [email protected] To contact the editors responsible for this story: Sarah McGregor at [email protected] ;Boris Korby at [email protected] Randall Woods

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