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U.S. Weighs Selling 50- and 100-Year Bonds After Yields Plummet
- ianai 7y agoSo pretty sure that’d be a form of institutional capital “parking” for later generations. I could see pension plans buying into them, maybe?
- option_greek 7y agoThat's one way to put it. Another way to put it is saddling future generations of Americans with debt.
- chewz 7y ago> Another way to put it is saddling future generations of Americans with debt. It would be wasteful not to borrow money at near zero rates
- romaaeterna 7y agoYes and no. The borrowing can prop up counterproductive spending, such as hiring smart people for government sinecures, keeping them from being creative in the public sector, etc. Also, budget dependence on cheap debt has in the past been a very costly habit for many countries when the high interest times come along again.
- option_greek 7y agoOnly if the generation borrowing is approximately same as the one paying it back :)
- scottlocklin 7y ago>It would be wasteful not to borrow money at near zero rates Someone gave me this argument recently. Mostly because she would have made a couple thousand in fees. I'd have been out tens of thousands in fees and interest. It wouldn't have done me a lick of good unless I had something amazing to invest in, which means I could have borrowed some money later. The same actually does apply to the government spending dumb ass Saudi/Japanese tribute money. If they're not investing it in something useful for the future, it's just lighting money on fire.
- ianai 7y agoWhen the US government has a debt there is wealth out in the non-US government above what clearing the balance sheet would allow. It’s actually a measure of the governmental contribution to social wealth. The pickle is in making the other side of the balance sheet positively affect the wealth of the nation the greatest. “Or it should be.” A surplus would be the government taking wealth in from the non-US government side. Something that sounds a lot more like governmental corruption and waste than the other option. Exactly equalling it out would make the entire economy zero sum.
- nostromo 7y agoNo, you can sell bonds at anytime, just like any other security. Existing 30 year bonds change hands all the time.
- beezle 7y agoGenerally yes but off the run issues have much poorer liquidity and spreads can be much wider.
- deleted 7y ago[deleted]
- jazzkingrt 7y agoMany institutions, such as university endowments or sovereign wealth funds, invest on these time scales. Example: https://www.bloomberg.com/news/articles/2017-08-29/why-yale-owns-a-forest https://www.bloomberg.com/news/articles/2017-08-29/why-yale-... And as another commented, these bonds can be traded long before they mature.
- ianai 7y agoOf course they can be traded at anytime. I think I’m somewhere between “why doesn’t this already exist” and “who cares”. It sounds at once both useful for creating long term assurances and highlights how different such financial choices are from common individual personal finance choices.
- outside1234 7y agoGod, the fools they would need to find to buy these sort of instruments... There is no way whatever rate they peg these at are going to cover inflation over that time period...
- chewz 7y ago> the fools they would need to find to buy these sort of instruments These fools run your pension fund.
- benj111 7y agoWould a 100 year bond be a good match for an annuity? (I guess that's what you're making reference to). 30 year bonds match the expected life expectancy of someone buying an annuity, 100 year bonds not so much.
- chewz 7y agoLonger time to maturity implicates larger interest rate risk. But with rates near zero there seems to be only one way to go. In higher interest rate environment Treasury might repurchase bonds with discount. So this is free money. On the other hand if US goes Japanese for next decade or two it might be last chance for holding gov bonds without paying for the privilege ;-)
- hew 7y agoWhat pension fund?
- coryrc 7y agoThe public employee ones your taxes backstop and guarantee 7% returns despite only getting 3-5%
- reaperducer 7y agoMy company offers a pension, and a 401(k). But then, I'm not in SV.
- Retric 7y agoWhat’s the advantage for the US government? Edit: Answering my own question the treasury sells EE Savings Bonds the can be redeemed early, and T bills that can be sold to someone else and not redeemed by the US government. Clearly the government would like to lock in rates expected to be as low as possible for as long as possible.
- dsp 7y agoWhy do you say they can be cashed in? US treasuries are generally nonputtable.
- Retric 7y agoGot confused looking at treasury direct a while ago. https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeredeem.htm https://www.treasurydirect.gov/indiv/research/indepth/ebonds...
- rory096 7y ago>These could be cashed in early if rates rise I don't think that's how T-bonds work. You can sell them on the secondary market, but that doesn't matter to the government — it locks in the rate it sold them at.
- PKop 7y agoIf they think rates are nearing a bottom, and will go up from here it obviously makes sense. Check out projections of US interest on debt expense. In a few years time it may exceed all other spending categories. Much of the US government borrowing is short term. What happens when rates rise? So, it makes sense to lock in as much borrowing they can at low rates.
- Despegar 7y agoIt's the market telling us that we need to pass Medicare For All and blow out the deficit. The boomers with money deserve a positive real yield.
- skybrian 7y agoSome worry that it won't cover inflation and others worry that it is "saddling future generations with debt". It seems like they can't both be right, but we don't know who is wrong? It's hard to make predictions, especially about the future. Could it be considered a hedge against deflation? (Or not as much inflation as you expect?)
- JumpCrisscross 7y ago> it is "saddling future generations with debt" Can’t comment on the other parts, but this argument is nonsense. The debt is saddled when the money is spent. 10y rolled over 10x or 100y is irrelevant. As an analogy, the length of time a dollar spent on a credit card will take to be paid off has nothing to do with the card’s term. It’s purely a function of spending and balance settling, the latter being a function of discretionary income and fiscal sense.
- beezle 7y agountil you can't roll it over anymore
- alpha_squared 7y agoIn my naive and ignorant perspective, it _feels_ like it paves the way to spend more now without thought of how to pay it back. A 10-year bond carries the likelihood that a way to pay it back will need to be considered in the near future, when many involved in selling the bonds are still around to figure out how to pay them back. Who here, with at least 50% confidence can say they'll be around in 50 years? 100 years? The issuance of bonds on that scale appear to carry the assumption that it will be paid back _somehow_ at _some point_ with little regard as to how. Isn't the current social security crises partly the fault of not thinking at scale of a century? Again, ignorance and nativity, please correct me where I'm not understanding.
- JumpCrisscross 7y ago> A 10-year bond carries the likelihood that a way to pay it back will need to be considered in the near future Consider someone with multiple mortgages. Their taking out a 20y mortgage has little bearing on when that debt will be extinguished. Maybe cash is flowing and it’s gone in two. Maybe it’s repeatedly refinanced for fifty years. There is no evidence that Congress or the electorate even consider the term structure of federal debt when considering spending. Deficits are a fiscal, not Treasury, matter.
- artfulhippo 7y agoWhat’s the probability that the US exists in 100 years?
- chewz 7y agoIf it won't someone else will pay. Countries fall and mutate but their borrowings get paid. https://en.wikipedia.org/wiki/Repudiation_of_debt_at_the_Russian_Revolution https://en.wikipedia.org/wiki/Repudiation_of_debt_at_the_Rus... https://www.nytimes.com/2000/11/19/world/russia-redeeming-czar-s-bonds.html https://www.nytimes.com/2000/11/19/world/russia-redeeming-cz...
- hedora 7y agoPresumably, the collapse of the government would coincide with a period of hyperinflation. Since US bonds are payable in US dollars (I think), that would effectively wipe out the debt. In the Russian example, the bond holders claimed they were owed about 100x the actual payout.
- kccqzy 7y agoHyperinflation would only come from the successor government's stupid decision to print money. If the successor government is led by smart, reasonable, and ethical people, I don't see how hyperinflation must be a consequence.
- shoo 7y agoThat's an interesting question! Can anyone suggest a good way to estimate this? I'd estimate the odds at around 80%-90%, but I don't have any coherent working to back that up. Note that very few human institutions have lifespans of 1000 years or more: a few universities and the Catholic church. I'd hazard a guess it is highly unlikely that the US exists in 750 years.
- nealabq 7y agoShould the US consider selling perpetual bonds, with no maturity date? I know Britain used to do this (the bonds were called Consols). Is this form of finance now discredited?
- timwaagh 7y agoIf it's cheap.... But British consols were 4% so they opted to pay back instead of bleeding money forever.
- raverbashing 7y agoIt makes sense when it pays interest, when interest is close to zero, I'm not sure how it would work.
- 40acres 7y agoOver the next generation fiscal policy will regain it's place (see post war era) as the primary growth tool as opposed to monetary policy. Monetary policy has led to a glut in capital that has no idea what to do with itself: it's led to huge asset bubbles as seen with housing and start up evaluations. The US should absolutely lock in these low interest rates to fuel green infrastructure and technology. Debt used to fund infrastructure and technology is the most effective use in our current environment.
- Retric 7y agoThat would be reasonable if the US was funding investments with debt. Instead it’s subsidies mostly tax breaks and consumption for little long term return. Lowering the cost of debt is still a good idea, but let’s not pretend we are in a fiscally sound situation.
- Despegar 7y ago>Instead it’s subsidies mostly tax breaks and consumption for little long term return. There's nothing wrong with consumption. Consumption is what drives the US economy and makes it the powerhouse that it is. The American consumer is what is keeping the US out of a recession while export-driven economies like Germany are heading into recession. The problem with our fiscal policy was that the tax cuts passed by Trump almost exclusively went to the richest people who have a low MPC (marginal propensity to consume). There's nothing wrong with expanding the deficits, the US doesn't need to worry about debt and the falling bond yields confirms that. But that fiscal spending should have been targeted at the poorest people in America. It should have been to give them universal health care or free higher education, not cutting corporate taxes.
- 40acres 7y agoFiscal policy and the private sector have not done enough to ensure long term growth -- as mentioned asset inequality has lead to a lot of capital in the hands of actors that do not spend money. Advancement in technology is deflationary by nature and so a lot of growth is only realized by the top. In times like this the public sector must intervene to frame the future for it's citizens and economy: focus on the health and education of your citizens, mitigate future risk by funding solutions to climate change, secure safety by spending on military and providing equal opportunity to quell internal social unrest. If you have strong instutions and control the currency that your debt is in (US, UK, Japan, China -- as long as the communist party maintains its current strength) this is the way to go, globalization will take a hit but will cycle back in the future.
- pjc50 7y agoInequality of assets had risen to extraordinary levels. The world is awash with cash looking for somewhere to park. If wealth taxes are politically inconceivable, fine; let the government sell negative real yield bonds instead. Nobody's even forced to buy them. How many dollars should the government borrow for 99 cents to be repaid in a century?
- votepaunchy 7y agoWealth taxes in the United States are not just politically and practically infeasible. The Constitution requires that a wealth tax be in proportion to each state’s population.
- rolltiide 7y agoYou’re right, we should therefore make representation proportionate to each state’s population, fair trade. (Obviously no consensus on a constitutional amendment but some states have passed laws that their electoral college votes must go towards the popular vote, which could get more widespread enough)
- newfriend 7y agoWe already do have proportionate representation in the house. The electoral college was specifically designed to be a mixture of the house and senate systems. At some point it might be good for you to get over the 2016 election.
- pjc50 7y agoI'm not over the 2000 election being decided by "hanging chad" yet.
- rolltiide 7y agoI don't represent any disdain toward the 2016 election. I can recognize that the left does have the numbers in this country and they flocked towards the coasts. They can selectively flock back to enough counties to make every single state blue if they could tolerate middle america for a single year. Only needs to happen once to remove power from the people that benefit from the electoral college.
- resters 7y agoWhen your reputation is on the brink you attempt to borrow more. It matters little what the rate turns out to be, as long as it is lower than it will be once the reputation is soiled.
- Animats 7y agoNow that's a bet against inflation.
- HNcantBtrustd 7y agoI know it's bad to hold USD, but this makes me want to take out a loan
- gumby 7y agoNext will be selling consols. (For those who've never heard of them: https://en.wikipedia.org/wiki/Consol_(bond) https://en.wikipedia.org/wiki/Consol_(bond) )
- blackflame7000 7y agoIt’s highly worrisome when dollar values get to be so large, that the fundamentals of finance that we all follow in our daily lives are completely thrown out the window. Voting over and over to raise the debt ceiling, printing more money, keeping interest rates low in a strong economy are all things common sense thinking would be weary of. It's starting to feel like the same myopic thinking that lead to the Mortgage-backed securities crisis is making similar decisions again
- Invictus0 7y agoRunning a household and running an economy are totally different things. There is a reason macro and microeconomics are taught separately.
- blackflame7000 7y agoSee that's the problem. At the end of the day, its humans trading with humans whether it's 100 people or 10 Billion. The core of any economy and any transaction is trust. Trust that you are getting an even barter for your payment. Profits are always second to Trust in any market and when that trust is violated by clever accounting, there is always a time of reckoning.
- pnx 7y agoSee that's the problem, a sorting algorithm just moves values around, whether it's 100 values or 10 Billion. At the end of the day if bubble sort is good enough for a micro controller it's good enough for a data center.
- blackflame7000 7y agoUntil you realize a data center is a bunch of small nodes working together.
- pnx 7y ago
- xxxpupugo 7y ago100 years? Won't most of the lenders would already die by that moment?
- peter303 7y agoNext they'll offer 100 year student loan enforceable on your children and grandchildren. :-)
- 6gvONxR4sf7o 7y agoFor a while, U.S. has targeted X% inflation. What happens if we sell a 100 year bond at Y% yield and then in 50 years economists learn we should target less than Y% inflation? In that case are we stuck between either the bonds growing faster and faster and faster than the dollar, or being constrained in inflation targets?
- phkahler 7y agoThereby illustrating what a stupid idea it is. That's the whole problem, everyone want to just push financial problems into the future.
- cmurf 7y agoI wonder if these will come in TIPS versions. We had quite substantial inflation in 1919, 14-18%, followed by massive deflation in 1921 approaching -16%, and +9-15% in 1980/1981. Looking at the past 25 years, you might get the idea it's not a good idea to buy TIPS bonds, but is hyperinflation inevitable or is it a solved problem?
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