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MarketWatch First Take

Opinion: Trump is right: The government should refinance to lock in low interest rates

Why not issue a 50-year bond? Or a 100-year bond?

The average Treasury security matures in 61 months.

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WASHINGTON (MarketWatch) — Donald Trump is right: Homeowners do it, businesses do it, and the government should do it too: The U.S. government should refinance to lock in today’s low interest rates.

In a phone interview with CNBC on Thursday, the presumptive Republican nominee for president said he’d refinance the national debt to take advantage of current low interest rates.

As of the end of March, the federal government owed about $14 trillion to the public, and was paying an average interest rate of 2.06%, down from just over 5% in 2007.


“We’re paying a very low interest rate,” Trump said Thursday. “What happens if that interest rate goes up 2, 3, 4 points? We don’t have a country.”

How would Trump’s refinancing plan work? The Treasury could buy back some of its debt (it did this in 2000), but the easier way would be to just refinance some of the debt as it matures, swapping maturing 2-year notes with 30-year bonds, for instance.

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The Treasury could minimize the interest it pays by issuing more long-term debt now before rates rise. It has done that and plans to do more, to a limited extent.

The average maturity of debt has risen in the past few years, but not as much as it could have if the Treasury had sold more longer-term notes and bonds. The average maturity of publicly held debt had dropped to just 46 months in October 2008 as the financial crisis erupted. It’s now climbed back to 61 months, but that’s still below the peak of 74 months reached in the early 1990s, when the Treasury’s benchmark issue was the 30-year bond.

The vast majority of the federal debt matures in the next five years. As of the end of March, about 30% of the publicly held marketable debt matured in the next year and another 41% matured in less than five years. Only 8% of the debt matures in 20 years or more. That means most of the debt is at risk of being rolled over when interest rates are higher.


The Treasury says it listens to the bond market when it decides on the mix of the maturities it offers because preserving a liquid and orderly bond market keeps costs low for taxpayers.


Ireland, Belgium and Mexico have recently sold 100-year bonds. Ford F, +0.51%, Disney DIS, -0.22%  and Coca-Cola KO, -0.91%  have sold 100-year bonds as well. The Canadian Pacific Corp. sold a 1,000-year bond. And many governments, such as the U.K., have issued bonds that have no maturity date at all: Called perpetuals, these bonds continue paying a coupon year-after-year until the principal is redeemed. The U.K. recently redeemed the consols that had financed its earlier wars against Napoleon and the kaiser.


Trump makes a good point: The federal government should issue more long-term bonds. It would save the taxpayers hundreds of billions of dollars on interest charges.

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