Does the market have the appetite for ultra-long bonds? Treasury wants to know

Is the 100-year Treasury bond really making a comeback?

Treasury Secretary Steven Mnuchin primed markets for the possibility in February and now the agency, with a survey sent this week, is officially asking the big banks and other investors who will be responsible for scooping up the new bonds what they think.

Though Treasury broaching the question does not automatically lead to a roll-out of bonds with a maturity date exceeding 30 years, the market query suggests the administration is trying to seriously gauge investor appetite for longer-term debt. In the past, bond market participants expressed concern about getting stuck with long-dated debt in the event of a selloff, but the mood may be changing, depending on who’s asked.

Read: Should the U.S. roll out a 50-year Treasury bond?

The survey follows Mnuchin’s February interview with CNBC, when he mooted the possibility of issuing ultra-long bonds. In response to the comments that day, the 30-year Treasury bond

TMUBMUSD30Y, +0.94%

 edged up 1.8 basis points to 2.912%, a momentary blip from the yield’s week-long decline.

The 22 primary dealer banks tasked with buying bonds from the U.S. government and re-selling them to other investors received the Treasury survey, as did other buy-side firms. Treasury is attempting to gauge the “volume of demand” and asked respondents what price ultra-long bonds might fetch relative to the 30-year bond.

The idea for issuing longer-dated debt had already been discussed a few times by the Treasury borrowing advisory committee, or TBAC, which is composed of senior executives from investment banks, asset management firms and hedge funds. Yet each time, broad interest from traders and investors had fallen short. In the minutes from a 2009 meeting for TBAC, members said such an offering would “serve no purpose.”

“There are tremendous costs associated with it. When you look at from a perspective of what you might have to do. How you might have to issue it. It’s a very tough sale,” said Tom di Galoma, managing director at Seaport Global Securities. He said low liquidity among longer-dated Treasurys could dull its sheen to portfolio managers that may have trouble off-loading them…

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