E Trump Should Absolutely Issue 100-Year Bonds
Donald Trump should absolutely issue 100-year bonds. Besides the advantages of pushing the rollover of bonds far into the future, the 100-year bond would give a better interest rate, would lock in a low rate over time, and be useful to companies that desperately need those bonds, such as pension funds and insurance companies. It could help the middle and lower classes if jobs were created by stimulus.
100-year bonds, which we could call very long bonds, would likely not be used as collateral in the lending and derivatives markets as collateral. In fact, I would not mind a law against using them as collateral. Certainly, collateral is in short supply. Issuing 100-year bonds would likely free up at least some 10 and maybe 30-year bonds for use as collateral. This may have a small impact on rates, but if they got out of hand the central banks could simply QE them. Most likely there would be little impact on rates, as demand for collateral remains strong.
And it isn't like insurance companies and pensions would not buy shorter duration bonds. But these companies would not be forced to sell the bonds if there was price fluctuation. They could be happy with the yields compared to what we have now for them. Banks may be interested in very long bonds in order to satisfy capital requirements under the LCR program.
While governments come and go, it is likely that the US government isn't going anywhere short of world catastrophe. Bonds would not be in demand in that scenario, so it makes no sense from the government's view to not issue the very long bonds.
It would help government, and people who may want to buy the bonds, and firms that are mandated to buy bonds. It could impact counterparties holding collateral some, but the amount of very long bonds could be issued in a way that controls the amount in circulation so that the counterparties would not panic.
Ultimately, the government would still issue bonds of shorter duration. It would have to do so, or else desperate people may consider very long bonds as collateral and that could be a problem. It could cause those bonds to be gobbled up as all other bonds are in massive demand.
Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.
Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.less