With Deficit Swelling, U.S. Will Issue New Class of Bonds

WASHINGTON — With years of trillion-dollar deficits ahead, the Treasury Department says it will soon begin issuing 20-year bonds in an effort to generate investor interest in government debt.

The Treasury Department, which has not issued a 20-year bond since 1986, announced on Thursday evening that the new type of debt would be available later this year. The department had also considered introducing longer-term debt, including a 50-year or 100-year bond, as a way of financing the swelling deficit and taking advantage of historically low interest rates.

“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.

At the DealBook DC Strategy Forum in September, Mr. Mnuchin said that he was considering “extending the portfolio” and that the Treasury Department would issue a 50-year bond if there was demand for one.

On Friday, Mr. Mnuchin posted on Instagram a cropped image of himself that was produced by Bloomberg News touting the new bond.

The 30-year bond is currently the longest-term debt that the United States government issues.

Analysts said that the 20-year bond would likely have more demand among investors than longer denominations, which likely would have been most appealing to pension funds.

“We think the demand base for a 20-year would be wider than for an ultra-long security,” analysts at JPMorgan Chase wrote in a note to clients last year.

Market strategists were surprised by the timing of the announcement and suggested that the decision had been made earlier than expected so that the Treasury Department could increase the size of its auctions this year when its financing requirements exceed its borrowing capacity.

The department said this week that the federal budget deficit surpassed $1 trillion in 2019, a 17 percent increase from the previous year. It was the first time the deficit had topped $1 trillion in a calendar year since 2012.

Priya Misra and Gennadiy Goldberg, analysts at TD Securities, recalled that the 20-year bond was first introduced in 1981, but its issuance was paused in 1982 and canceled in 1986 because of debt-ceiling constraints. The appetite for the bond this time around remains to be seen.

“While the 20-year does diversify Treasury’s buyer base and provide more supply and liquidity to the long end investor base, it is not obvious that there will be all that much demand for the product,” Ms. Misra and Mr. Goldberg wrote in a note to clients.