The US Treasury has announced that it will begin issuing 20-year bonds in the first half of 2020. The idea has been broached for some time, and as recently as October last year the Treasury was still considering several new debt products, amongst them 20, 50, and even 100-year bonds. The Treasury said it had spoken to a broad set of market participants and believes strong demand for a 20-year bond will increase its financing ability. And boy does the U.S. need it. In 2019 the government spent just over USD1tn more than it took in, the highest deficit for 7 years.
Interestingly, according to those countries with the biggest holdings of treasuries, China and Japan, interest was shown for longer dated bonds, however, it was decided to add 20-year bonds to the roster as others showed little appetite beyond 30-years. Steven Mnuchin, the Treasury Secretary said ‘We seek to finance the government at the least possible cost to taxpayers over time, and we will continue to evaluate other potential new products to meet that goal’. Issuing 20-year bonds will be a reintroduction of a security last seen in March 1986.
Also overnight, China announced its economy grew by 6.1% in 2019, unsurprisingly in-line with the official economic growth target of between 6.0 to 6.5 percent that Beijing quoted in March last year. In 2018 growth was 6.6%, making the 2019 figure the slowest growth since 1990. Alongside the growth figures, other economic data released showed growth in industrial output and retail sales for the month of December.
Lastly, according to the FT, the US is not the only one looking at new bond issuance. An agency set up five years ago, the UK Municipal Bonds Agency (UKMBA), aimed at helping UK councils increase their ability to fund cheaper debt, looks to be a step closer to its first issuance after the UK government ramped up the interest rate on its own local authority loans via the Public Works Loan Board (PWLB). The FT reports that Lancashire county council will be the first to dip its toe, looking to raise between GBP250m to GBP300m, with the deal completed by the end of January or early February subject to market conditions. The UKMBA’s second bond, which will be issued on behalf of a group of authorities, has been pencilled in for late March or April, although that bond will be covered by the agency’s proportional guarantee, unlike the first which will be fully guaranteed solely by the authority.