buyers grabbed Mexico’s 100-year bonds, despite a pockmarked history of devaluations from 1827 to 1994. In June, Argentina which wrecked lenders and citizens in 2002 and has defaulted six times in 100 years – held its own well-attended, well-bid 100-year auction. More stable countries like Japan, France, and the United Kingdom issue bonds with durations of 40 years or more. This was a terrible trade-off that made President Obama look better while almost guaranteeing that our children would be worse off. Instead of taking Disney’s and Mexico’s lead, the U.S. Treasury recklessly borrows short- term funds that must be rolled over. The average maturity of U.K. debt is three times longer than U.S. debt. President Obama’s Treasury department claimed that it had taken advantage of low yields – and did extend the average duration of debt. But it was a flimsy boast. Yes, duration moved up to just about five years, but that was still short of the early 1990s and well below the 2001 record of about six years. And let’s put the 2001 comparison in perspective. In 2001, 10- year U.S. Treasury securities yielded 5.16%. In 2012, the 10-year hovered just above 1.6%, before making its slow and erratic crawl to 2.35% today. If policymakers were more prudent and more committed to future generations, they would have smashed the 2001 record, not gazed up at it. According to the minutes of the Treasury
average duration of government IOUs is far shorter... 70% of U.S. debt has a duration of less than five years. So why doesn’t the U.S. Treasury give tomorrow’s children a break by taking a deal and issuing 50- or 100-year bonds, locking in those puny rates for a lifetime? You might think that in a world of “Brexit” votes and separatist movements in Catalan and Kurdistan, no one would trust that any government will be around in 50 or 100 years. But last year, Spain auctioned 50-year bonds. Private corporations have pulled off the trick, too, including Coca-Cola, IBM, and Ford. Disney issued 100-year “Sleeping Beauty” bonds, and according to the Los Angeles Times , “demand proved greater than the company had anticipated.” Railroad operator Norfolk Southern enjoyed a similar reception in 2010. CBS News reported that “institutional investors bought them like crazy, leading Norfolk Southern to more than double the issue.” Imagine, buying 100-year bonds from a railroad? Will rails even exist in the 22nd century? Remember the line from Back to the Future : “Roads? Where we’re going we don’t need roads.” Universities from the Ivies to the Big 10 to the Pac 10 have issued 100-year bonds. It may be the only thing other than avocado toast and faded Bernie Sanders stickers that unite fractured campuses from Yale to Ohio State to USC. Even governments with shaky financial histories have grasped the concept. In 2010,
30 | November 2017
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