Treasury to start issuing 20-year bonds to fund ballooning deficit

The U.S. Treasury, as it seeks a way to finance the skyrocketing budget deficit, is introducing a new 20-year bond in the first half of 2020.

Officials were previously considering proposals for a 50-year or 100-year bond, but chose to issue a 20-year bond instead, the Treasury said in a statement on Thursday. More details are expected to be provided in the Treasury’s quarterly refunding statement, which will be released on Feb. 5.

“We seek to finance the government at the least possible cost to taxpayers over time, and we will continue to evaluate other potential new products to meet that goal,” Treasury Secretary Steven Mnuchin said in a statement.

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While exploring the various funding options, the Treasury said it solicited feedback from a “large and diverse” group of market participants and determined there will be strong demand from investors for the 20-year bond, increasing the agency’s financing capacity.

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The Treasury currently issues 10- and 30-year bonds. (Previously issued 30-year bonds yield about 2.28 percent. Japanese 20-year bonds yield about 0.31 percent, and German ones about 0.07 percent.) A new bond could help the White House reduce taxpayer pain on lowering the budget deficit and boost pension funds.

The Congressional Budget Office is estimating that the deficit for the current 2020 budget year will hit $1 trillion -- and will top $1 trillion for the next decade. The U.S. has not seen a budget surpass $1 trillion since the years immediately following the financial crisis.

In 1986, the Treasury eliminated 20-year bonds in favor of the 30-year security.

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New securities aren’t uncommon in other countries: Mexico raised $1 billion in 2010 with a 100-year bond offering; Belgium and Ireland, in 2016, each raised 100 million euros with 100-year bonds.