International evidence on extending sovereign debt maturities

Abstract

Portfolio diversification is as important to debt management as it is to asset management. In this paper, we focus on diversification of sovereign debt issuance by examining the extension of the maximum maturity of issued debt. In particular, we are interested in the potential costs to the U.S. Treasury of introducing 50-year bonds as a financing option. Therefore, we first examine international evidence from four developed foreign government bond markets with such long-term debt. The results show that 50-year bonds in these markets trade at an average yield that is at most 20 basis points above that of 30-year bonds. Results based on extrapolations from a dynamic yield curve model using just U.S. Treasury yields are similar.