100 Year Bonds Make Sense

David Merkel has advocated the U.S. Treasury issue longer-dated bond, as far as 100 years. It makes sense. We can be pretty sure the government will still be around in 2108. The general idea is that the more in debt you are, the longer you want your term structure to be. Fifteen years ago, Disney (DIS) issued 100 year bonds, and later Ford (F) did. Of course, I don’t know if Ford will be around in 100 years. Perhaps as a minor division of Toyota (TM).

Now, Peter Fisher, who used to be Treasury undersecretary, has also come out in favor of a 100-year bond. Fisher was the same guy who ditched the 30-year bond a few years ago. Of course, Uncle Sam’s finances looked a lot better then. Fisher was also the guy who got calls from Bob Rubin to help out Enron when it was going under. Fisher told Rubin (correctly) that the economy would survive an Enron bankruptcy.

I could go one step further and say we need perpetuities—bonds that never mature. The Brits call these consol bonds. Mathematically, there’s something I like about perpetuities. You can ditch the complex YTM formula and simply divide the coupon by the current price of the bond.

Comments

[nova]

There is a good news: Mr. Rubin is now Obama's chief economic adviser.

2008 Dec 07 08:18 PM