The U.S. Treasury will start issuing 20-year bonds in the first half of 2020, expanding its roster of securities as the government seeks ways to fund a ballooning deficit.
Institutional investors have been clamoring for more longer-dated, risk-free securities that offer some nominal yield, amid a global total of $11 trillion of debt with negative rates. Japanese officials have discussed adding a 50-year security, something the U.S. opted against in its announcement.
"The 20-year bond fits more easily into the existing market structure," said Lou Crandall, chief economist at Wrightson ICAP LLC in New York. "This is a way of taking advantage of long-term interest rates that are low by historical standards without introducing a wild card such as an ultralong bond, which would have had more growing pains."
Previously issued 30-year Treasuries with about 20 years left to maturity yield about 2.15%, suggesting the new debt will offer a sizable premium over other comparable notes. Japanese 20-year bonds yield about 0.31%, and German ones just 0.07%.
The new 20-year bonds will probably draw more domestic buyers than global funds, who tend to favor shorter maturities. Foreign investors bought an average of less than 9% of U.S. 30-year debt sold at auctions in 2019.
"It's much more useful than a 50- or 100-year bond, which only really work for a pension portfolio," said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments. "Twenty-year bonds are a much more natural fit in mutual funds and institutional bond mandates."
More information will come in the Treasury's next quarterly announcement of sales of longer-dated debt, on Feb. 5, the department said in a statement. Given that the long-standing practice is to avoid a market-timing issuance strategy, the sales will be done "in a regular and predictable manner in benchmark size," the Treasury said.