Forget about investing in the United States if you have a super-long duration.
Given the recent Covid-19 volatility sparked bond market rally, interest rates have fallen across the yield curve making long- and ultra-long maturity bond yields unattractive to investors. For example, the Treasury 10-year note yield fell to 0.706% on Friday while the 30-year bond yield closed at 1.25%.
The VIX, the most watched barometer of market volatility, closed Friday at 41.94.
So, why purchase a 50-year risk and only received perhaps a sub 2% return?
The US Treasury has acknowledged this simple risk/return problem potential buyers face and opted to halt sales despite the fact the government has the unique opportunity to issue debt and pay so little on it.
Last week amid the Wall Street stock sell off and bond market rally, U.S. Treasury Secretary Steven Mnuchin ditched the idea of issuing 50-year bonds because there’s little interest among investors, but might revisit the notion should the yield curve become more advantageous to the idea.
“We went out to a large group of investors and solicited feedback from our Treasury borrowing committee and I was somewhat surprised that the result was that there’s some interest in this but perhaps not enough that it would make sense to issue those bonds at this time,” Mnuchin told the House Ways and Means Committee on Tuesday.
“We will continue to revisit this,” he said. “If there’s market demand that’s sufficient we will again consider” 50- or 100-year bonds.
The last time a 50-year Treasury bond was issued was in 1911.