President Donald Trump and his advisers always seem to try to think big. Perhaps, sometimes a bit too big. Treasury Secretary Mnuchin’s recent proposal to lock in low rates with 50-year and 100-year maturity government bonds is facing some staunch opposition from from major players on Wall Street (his old stomping ground), including from Black Rock, Vanguard, Brevan Howard and others. According to the Wall Street Journal, Wall Street institutions argue that the big pension funds and insurers that would presumably be expected to buy the securities won’t have much interest. We’ll look at these arguments, and what other countries have done in terms of long-term bond issuance. (For more, see also: What Will a Trump Economy Look Like?)
Low Rates and Ultra-long Bonds
As interest rates in the United States begin to creep up from a decade of record low levels, some in the Trump administration are looking to follow Europe’s lead and lock in these low rates for an extended period of time via bonds with maturities as long as 100 years. Such a bond would allow the government to effectively borrow at today’s historically low rates and lock them in regardless of how they change over the next century.
The U.S. would not be the first nation to issue such long-term bonds. Mexico issued a 100-year bond in 2010, and a number of European countries did likewise in the past year to lock in interest rates close to zero percent. A number of European countries last year sold debt maturing in at…