Record-low interest rates over the past decade have spurred a huge amount of new debt issuance. From the federal government to major corporations to American households, American indebtedness continues to climb. And now it’s beginning to reach another level of absurdity as the Treasury Department has announced that it is looking into the possibility of issuing 50-year and 100-year Treasury securities. Who would buy securities with such a long maturity?
The federal government is in absolutely atrocious financial condition, with over $22 trillion in debt and a whole series of government programs at risk of being underfunded in the near future. Yet still the government believes that investors would be willing to lend it money for a half-century or a full century.
To the government’s eye that would lock in incredibly low interest rates for decades to come, and would keep the government from having to worry about repaying those debtors or rolling over those securities for a good long while. But what upside is there for investors?
For average Main Street investors there really is no advantage. 10-year Treasuries are currently trading at around 1.5%, while 30-year Treasuries are around 2%. A 50-year or 100-year Treasury might get to 2.5% or 3%, unless the Federal Reserve keeps pushing interest rates lower. Those kinds of returns are about even with inflation right now, and very likely to lose money to inflation over the course of their term. So who would invest in them?
It would likely be large financial institutions that need certain amounts of tier one capital, or pension funds and retirement plans that have a need to invest in supposedly safe and secure assets. A 50-year or 100-year bond would satisfy their needs and ensure they wouldn’t have to worry about constantly buying new safe assets. Whether or not that’s a large enough market to justify issuing those kinds of securities remains to be seen.
What is certain, though, is that every time long-term bonds like this are floated as a potential idea, it’s an indicator that things are about to go wrong. Investors who really want safety and security should invest in gold instead, as its growth in value is not only longer than long-term bonds, it has also outpaced stock markets over the long term. If you were able to live for another 100 years, what would you rather own: a debt instrument issued by the US government, or a bar of gold?