Economic Perspective: 100-Year Bonds

NC State College of Agriculture and Life Sciences professor Dr. Mike Walden working in a recording studio.

MARY WALDEN:

“Today’s program looks at 100-year bonds. Mike, typically when people, businesses or governments borrow money the maximum length of the loan is 30 years, but I understand there is some talk of the government increasing bonds for them to 100 years. Why is this being discussed now, and does it make sense?”

MIKE WALDEN:

“Well the 30 year length of time, maximum length of time for a bond, came about because it corresponded to the average length of a person’s working career. So for example, if you’re borrowing money to buy a house, and you’re going to pay that back over time, a lender usually wouldn’t want to have that payment period more than 30 years because then you would be retired and maybe you couldn’t pay back the money.”

“Now governments are different. Governments don’t have a certain length of time. Our government goes on, and on and on. And right now there is talk of lengthening the 30 year maximum bond that the government borrows money on to maybe 100 years in order to take advantage of record low interest rates. What happens with the government borrowing is often they simply roll that money over. So if they borrow money for 30 years, 30 years comes up they simply reborrow for another 30 years, and they have rolling interest rates.”

“The idea now is with interest rates at probably historic lows, maybe never again will we see interest rates this low, why not just go ahead and borrow for a super long period of time and lock in that low interest rate which over time could save the government a lot of money. So that’s where this discussion is coming from. The U.S. Treasury Department is currently looking at this, and we may see something we haven’t seen in a long, long time in this country: borrowing over 100 years.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.

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