Mortgaging your grandchildren's future

By Thomas R. Keene and Michael J. Moore

Dec. 2 (Bloomberg) -- BlackRock Inc.’s Peter Fisher said the U.S. Treasury should consider selling 100-year bonds to ease the federal government’s borrowing costs as it faces a budget deficit expected to top $1 trillion.

“If you issued a 100-year bond and had principal and interest pay down smoothly over the last 50 years, you create a great borrowing device for the Treasury that would let us move this hump of borrowing over the generational retirement that’s coming up,” Fisher, managing director and co-head of fixed income at BlackRock in New York, said in a Bloomberg Radio interview.

Fisher, Treasury undersecretary from August 2001 to October 2003, eliminated 30-year bond auctions in 2001 to reduce government borrowing costs after four years of federal budget surpluses. The U.S. hasn’t been in the black since. The government revived sales of the security in February 2006.

100-Year Bonds

Federal Reserve Chairman Ben S. Bernanke said yesterday that he may use less conventional policies, such as buying Treasury securities, to revive the economy.

The 30-year Treasury bond, the U.S. government’s longest maturity debt, has higher borrowing costs because of the uncertainty caused by a lump-sum payment of the bond’s principal at the maturity date, Fisher said. He said the Treasury would have to eliminate that volatility on a 100-year bond by paying down the principal over time.

In 1993, Walt Disney Co. became the first company since at least 1954 to issue 100-year bonds. In 1997, Ford Motor Co. sold $500 million of 100-year bonds, exploiting a decline in Treasury yields. Demand for the Ford bonds, priced to yield 7.81 percent, was so high that it sold out within 25 minutes of the start of the sale.

“There are a lot of investors, pension funds, endowments, who would love to get a long-term annuity like that,” Fisher said. “They love to get an interest-only stripped off the 30- year, and they’d love to get something even longer. I think there would be a lot of demand from investors for that.”