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Aug. 10 — The Treasury Department should try to take advantage of low long-term interest rates by issuing more debt that matures further into the future, an economic adviser to Republican presidential nominee Donald Trump said.
“Creative financing should be done at many levels, primarily the private sector, but even the federal government,” David Malpass said Aug. 10 in an appearance on C-SPAN's “Washington Journal” program.
In general, long-standing Treasury debt management policy, under both Republican and Democratic administrations, has been to make sure debt issuance is regular and predictable, making it easier for the financial markets to adjust to changes. Malpass's comments suggest that idea could face scrutiny in a Trump administration.
Some economists believe the government is missing out on a chance to lower its borrowing costs by not issuing more Treasury notes and bonds instead of Treasury bills, which mature in a year or less.
“One of the things I have written about is the frustration I have that, with bond yields very low right now, why is the Treasury not issuing more of those low-yield bonds, locking in the low rates?” Malpass said.
“So that exposes the taxpayer to interest rate risk,” he said. “So I think there is a change that could be made there.”
Treasury historically has said it tries not to change its debt issuance pattern in response to changes in interest rates for fear it will be seen as attempting to “time the market.” The mix of Treasury debt issuance in recent years has meant the average maturity of debt has become longer, though.
That measure was 70 months on June 30, according to a recent Treasury presentation made to the private sector Treasury Borrowing Advisory Committee. Seventy months is longer than the 59.1 months that Treasury said was the historical average between 1980 and 2016.
Treasury is expected to have to increase its debt issuance as annual deficits grow larger. The Congressional Budget Office said Aug. 5 it expects the 2016 deficit to be about $590 billion, up from a $534 billion forecast made in March (See previous story, 08/08/16).
The Treasury Department said Aug. 10 the monthly deficit for July was $112.8 billion, close to the CBO estimate released Aug. 5. That brought the year-to-date deficit with only two months left in the fiscal year to $513.7 billion.
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The CBO's Monthly Budget Review for July 2016 can be viewed at http://src.bna.com/hCO.
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