US 20-year relaunch seen boosting corporate bonds

3 min read
Americas, EMEA
Richard Leong, William Hoffman

The longer-dated part of the US corporate bond market is expected to heat up as the US government plans to reintroduce a 20-year debt issue later this year to help finance its growing budget deficit.

A 20-year Treasury note issue will likely boost overall liquidity in that area of the bond market and facilitate hedging of longer-dated corporate assets, analysts and investors said.

"We think this is positive for corporate bonds especially the 20-year sector," said Daniel Alexander, a trader at Western Asset Management Co.

Corporations have been selling 20-year debt even after the US Treasury discontinued its 20-year issue in 1986 after due to liquidity problems.

The US 20-year government note will be relaunched into a global bond market where there is over US$10trn worth of negative-yielding debt. The bulk of that debt is mostly from Europe and Japan due to their central banks' ultra-loose monetary policies adopted to combat the global credit crisis more than a decade ago.

Meanwhile, insurers and pension funds have been stockpiling longer-dated debt in an effort to generate adequate income to meet their payment obligations in this historically low-rate climate.

"The natural buyer for that part of the curve would be liability driven investors, insurance companies, and pension funds," said Conning's head of corporate and municipal bond teams Matt Daly. "Increased issuance, assuming we remain in the same macro environment, would be well received."


Wall Street analysts expect the Treasury Department would roll out its first 20-year issue in more than three decades as a part of its May refunding.

They project the Treasury would sell US$11bn-US$14bn in May, followed by a US$9bn-US$11bn reopening in each of the next two months.

Goldman Sachs forecast the annual issuance of 20-year Treasuries could eventually to US$200bn-US$250bn, replacing some medium-dated government debt.

Analysts said the upcoming 20-year issue would price at a spread anywhere from 10bp-30bp above the benchmark 10-year Treasury yield

The 10-year yield fell to 1.592% late on Wednesday, hovering above its lowest level since October, Refinitiv data showed.

The Treasury will likely provide details and timing for the 20-year note sale in early February before its upcoming quarterly refunding.


With investors staying hungry for longer-dated debt, even from a huge influx of Treasuries, companies should consider issuing more 20-year bonds to lock in cheap long-term funding, analysts and investors said.

"It’s a great time to issue and term out debt maturities in a low rate environment, and there is certainly ample demand for paper," Conning's Daly said.

Corporations have been printing healthy annual amounts of 20-year bonds since 2013.

Last year, they sold US$36.12bn of this maturity, which was the most in four years, according to Refinitiv data.

The biggest 20-year issue in 2019 was part of AbbVie's blockbuster $30bn bond offering priced in November. Those 20-year notes raised US$3.99bn for the drugmaker, offering a spread of 170bp over comparable Treasuries to investors. nL2N27S0MZ

Companies mulling whether to issue 20-year debt will have an easy reference point to decide after the Treasury returns to this part of the US bond market.

"Corporations will look it as a good benchmark," said TD Securities senior interest rates strategist Gennadiy Goldberg.

"It does have ancillary benefits outside of Treasuries. This gives a nice easy point to hedge."

GRAPHIC: US 20-year corporate bond issuance