The US Department of Treasury announced new details on its upcoming 20-year bond revival, after a surprise announcement last month on its plans to bring the bonds back after being on hiatus since 1986.
The Treasury will issue the new bonds in February, May, August, and November of each year, with new issue in the refunding months and two re-openings in subsequent months. The department said that the structure will align with coupon and maturity dates of the 20-year notes with the 10- and 30-year bonds.
“Treasury believes that there will be strong demand from investors for this security, which will increase our financing capacity over the long-term,” the department said in a statement. “Treasury intends to make the 20-year bond a benchmark issue through regular and predictable monthly issuance in sizes sufficient to maintain benchmark liquidity.”
An advisory committee to the US Treasury recommended the initial auction size to launch between $10 billion and $13 billion, however the official tally will be released in a report due to be issued in May 2020.
“We are at a historic point in time in terms of demand for yield, low-interest rates—and the yield curve is flat. To issue longer-dated financing makes a lot of sense,” said Rick Rieder, chief investment officer of global fixed-income at BlackRock, to The Wall Street Journal. “The 20-year part of the yield curve fits a large number of players in the market and the yield curve hasn’t been filled out yet.”
The Treasury has explored a number of different possible products “to finance the government at the least possible cost to taxpayers over time,” Treasury Secretary Steven T. Mnuchin said. Among those considerations were 20-, 50-, and 100-year bonds, as well as floating-rate notes linked to the Secured Overnight Financing Rate.
The Treasury’s benchmark 10- and 20-year bonds yield 1.6% and 2.1%, respectively. The Congressional Budget Office estimates the federal deficit to grow to $1 trillion in 2020.
The 20-year bonds will auction the same week as treasury inflation-protected securities (TIPS), in order to spread the auction supply of duration more evenly across the month.