Kudlow’s War Bonds Are Coming, But in a Plain Vanilla Wrapper

President Donald Trump’s top economic advisor Larry Kudlow may get the war bonds he wants as the U.S. swells its debt pile to levels unlike anything seen since World War II.

They won’t actually be called war bonds, an idea Kudlow says he discussed with Trump and Treasury Secretary Steven Mnuchin. They won’t actually be any different than the type of securities already being auctioned -- beside a reboot of a maturity that was previously shelved -- but they will be part of what the president calls his war with the “invisible enemy” of Covid-19. And they likely will cause the amount of U.S. debt to match the size of the economy for the first time since the 1940s.

Mnuchin is already cranking up debt issuance to fund the widening budget deficit in the wake of a $2.2 trillion stimulus package, the largest ever passed. The aid was expected to keep the economy running for another eight weeks or so, according to Mnuchin’s own estimate when the law was enacted.

“The sheer amount of debt coming is really war-time sort of funding,” said John Briggs, head of strategy for the Americas at Natwest Markets.

The tenors of the securities are expected to match what the government now offers, which are Treasuries with maturities out to 30 years, as well as a return of 20-year bonds.

No 50-Year

Mnuchin has heeded guidance from Treasury’s debt advisory committee, which for years had stressed the U.S. should avoid bonds with longer maturities in order to best serve taxpayers. He has studied the potential of ultra-long bonds twice, with the possibility of a 50-year security re-emerging amid the current crisis.

However, Mnuchin’s team concluded that the time isn’t right for ultra-long bonds, despite pressure from some corners of the administration.

“We are going to be auctioning off 30-years and 20-years -- buy one of each, and it’s the 50-year,” Mnuchin quipped last week when pressed in a CNBC interview on the prospect of war bonds.