January 17, 2020 / 1:04 AM / 3 months ago

REFILE-UPDATE 2-U.S. Treasury to issue new 20-year bond in H1 2020

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By Ira Iosebashvili

Jan 16 (Reuters) - The U.S. Treasury will begin issuing a new 20-year bond in the first half of 2020, as it seeks to plug budget deficits expected to top $1 trillion annually.

“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,” the Treasury said in a statement on its website.

The decision was made after officials explored several varieties of potential new debt products, including 50-year and 100-year bonds, the statement said.

“There is demand. Everybody is looking for this stuff,” said Axel Merk, chief investment officer of Merk Investments, a fund based in Palo Alto, California. “People are chasing yield and if you have something that’s safe and a lot of it is available people will gobble it up.”

The Treasury last issued a 20-year bond in 1986.

Higher spending, coupled with tax cuts enacted in 2017, are contributing to widening budget deficits. The government spent $984 billion more than it took in during the last fiscal year ended Sept. 30, and the non-partisan Congressional Budget Office projects annual budget deficits averaging $1.2 trillion over the next decade.

Rapidly-rising U.S. national debt now stands at $23.1 trillion, a level that some experts fear could eventually hobble the economy.

More investors warmed to the idea of owning a U.S. Treasury bond that matures beyond 30 years, but most still preferred the U.S. Treasury Department to roll out a 20-year security over an ultra-long issue, a J.P. Morgan survey showed last summer.

Half of the nearly 130 respondents surveyed said they prefer a 20-year Treasury security in that survey. That figure was significantly lower than 73% in a poll two years earlier.

Thirty-nine percent said they would buy an ultra-long Treasury bond. The respondents include banks, asset managers and hedge funds. (Reporting by Ira Iosebashvili in New York; additional reporting by Ismail Shakil in Bengaluru; editing by Kenneth Maxwell and Grant McCool)

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