Wall Street Pushes Treasury to Consider 100-Year Bond

Wednesday, 02 Feb 2011 12:52 PM

 

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Top Wall Street firms are urging the U.S. Treasury to create new products for American investors and have suggested an ultra-long bond with a maturity of 100 years, according to minutes from an advisory committee meeting released Wednesday.

The Treasury's debt advisory panel, which includes executives from JPMorgan Chase and Goldman Sachs, recommended at a meeting on Tuesday that the government develop products for three different investor classes: banks, pension funds and insurers, and retail investors.

The new offerings would be a way to pump up domestic demand for the government's securities. Although around half of U.S. debt is held by domestic investors, heavy reliance on foreign creditors such as China, with just under $900 billion in U.S. Treasuries, is causing some concern in Washington.

The minutes said one member of Treasury's Borrowing Advisory Committee panel, who was not identified, said that expanding the share of domestic investors was desirable and would reduce overall funding risk, noting that Italy's, Japan's and Britain's debts are largely funded domestically.

The panel member said "significant demand exists for high-quality, long-duration bonds" from financial players like insurers and pension funds that have longer-dated liabilities, according to the minutes.

But a top Treasury official dismissed a bond with a maturity as long as 100 years. "I don't think there is much benefit of going out that long," Mary Miller, Treasury's assistant secretary, told reporters on Wednesday.

Another panel member, who also was not identified, urged the Treasury to develop products that target the needs of banks, retail investors, and pension funds and insurers. The member estimated that demand from these investor classes could total $2.4 trillion over five years if the right products were offered.

Miller said the Treasury had no plans to change anything at the moment. "We have nothing on the table right now," she said.

Executives from top Wall Street investment firms meet once a quarter with the Treasury to advise the government on borrowing conditions. The notes were from a Feb. 1 meeting.

Market players were equally dismissive of an ultra-long bond. "I just don't see it," said John Canavan, a market strategist with Stone & McCarthy Research Associates in New Jersey.

"Given current interest rates, they could try to issue them to lock them in. But they are clearly meeting their financing needs at the moment. I don't see them instituting it," he said.

© 2014 Thomson/Reuters. All rights reserved.

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