This US bond will hit markets for the first time in decades. Here’s why

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The US government is bringing back a bond it hasn’t issued since 1986 as America’s deficit continues to balloon.

After looking at a range of long-dated options, the US Treasury has announced that it will issue a new 20-year bond in the first half of 2020. The decision follows a feedback period, during which the Treasury also considered 50-year and 100-year bonds.

“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 on Thursday evening, the timing of which took investors by surprise.

Why it’s happening: While the US Treasury is well-funded through fiscal year 2020, next year “becomes a bit more challenging,” Mark Cabana, head of US interest rates strategy at Bank of America, told me.

That’s because, in the next fiscal year, the government will need to pay back some of the debt that was issued to finance corporate tax cuts and tax reform in late 2017.

“Treasury needs a new source of financing to meet future deficit needs,” Cabana said.

Who’s interested: A 20-year US bond will primarily appeal to pension funds or insurance companies that have to manage longer-term liabilities, according to Priya Misra, head of global rates strategy at TD Securities.

It could also help the US government fund a second round of tax cuts or infrastructure spending, she said. More details on the bond will arrive in February, and Misra expects it will first be issued in May.

Know this stat: The US deficit surpassed $1 trillion in 2019, the first time the country has crossed that threshold in a calendar year since 2012.

CEOs and politicians are gathering in Davos

The World Economic Forum’s 50th annual meeting kicks off Monday, drawing 3,000 of the world’s richest and most powerful people to a picturesque ski village in the Swiss mountains.

Top billing at Davos will go to US President Donald Trump and environmental activist Greta Thunberg as the conference for global elites turns its attention to the climate crisis and sustainability.

Trump will deliver what the organizers describe as a special address on Tuesday, offering his brand of populism to attendees who represent governments, companies, central banks and transnational organizations.

Two hours later, Thunberg — Time Magazine’s “Person of the Year” — will open a debate on how to avert a “climate apocalypse.”

The headliners have clashed on social media and may steer clear of each other in Davos. But attendees won’t be able to avoid climate change, given that the meeting’s theme is “Stakeholders for a Cohesive and Sustainable World.”

Watch this space: Companies used the week leading up to Davos to make major climate announcements. Nestle said it would spend billions to create a market for recycled plastics, while Microsoft pledged to go “carbon negative” by 2030.

Expect sustainable investing to be on the agenda, too. BlackRock CEO Larry Fink, who will be in attendance, warned in a recent letter to CEOs that the world is “on the edge of a fundamental reshaping of finance” as a result of the climate crisis.

Weekend read: Davos VIPs are worried about the climate crisis. They’re still using private jets

Up next

Monday: US markets closed; China lending rate decision; World Economic Forum kicks off its annual meeting

Tuesday: Capital One, IBM, Netflix and United Airlines earnings

Wednesday: US existing home sales; Bank of Canada interest rate decision; Johnson & Johnson and Texas Instruments earnings

Thursday: European Central Bank interest rate decision; American Airlines, Comcast, Kimberly-Clark, Procter & Gamble, E*Trade and Intel earnings

Friday: US PMI data; American Express earnings

2020-01-19 04:11:00

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