JPMorgan's Bob Michele Advises Treasury to Eliminate 20-Year Bond

JPMorgan Asset Management's Bob Michele has publicly suggested that the U.S. Treasury should consider discontinuing the 20-year bond as part of its debt issuance strategy. Addressing Treasury Secretary Scott Bessent, Michele recommended that the so-called 'orphan' bond be removed from the lineup of government securities.

The 20-year Treasury bond occupies a somewhat unusual position in the spectrum of U.S. government debt. While the Treasury issues notes and bonds across a range of maturities, the 20-year maturity has often been less prominent compared to the more widely traded 10-year and 30-year bonds. This has led some market participants to view it as a less liquid and less essential piece of the debt curve.

Michele’s view reflects concerns about market efficiency and liquidity. By eliminating the 20-year bond, the Treasury could potentially simplify its borrowing program and focus investor demand on the more established long-term securities. This could help improve the overall functioning of the Treasury market by concentrating trading volumes and reducing fragmentation.

The U.S. Treasury regularly reviews its debt issuance strategy based on market conditions, investor demand, and funding needs. Over time, certain securities have been introduced or retired to better align with these factors. The 20-year bond was reintroduced in recent years after being discontinued for a period, but its place remains less defined compared to other maturities.

From an investor standpoint, Treasury securities serve as benchmarks for a wide range of financial products, including mortgages, corporate bonds, and derivatives. The 10-year Treasury note, for example, is closely watched as an economic indicator. The 20-year bond has not achieved the same level of prominence, which can affect its liquidity and pricing transparency.

Market participants often prefer securities that have consistent issuance and robust secondary market activity. The 20-year bond's lower issuance size and less frequent auctions contribute to its characterization as an 'orphan' bond. These factors can increase trading costs and reduce its attractiveness among institutional investors.

Removing the 20-year bond could lead to a more streamlined and liquid Treasury yield curve. It might also simplify portfolio construction for asset managers who currently weigh multiple maturities with varying liquidity profiles. However, any change to the Treasury's issuance calendar involves careful consideration of investor demand, funding costs, and market impact.

Historically, the Treasury has adjusted its offerings in response to changing market dynamics. For example, the introduction of the 20-year bond was partly aimed at filling a gap between the 10-year and 30-year securities. If the Treasury decides to retire the 20-year bond again, it would mark a shift back toward a more traditional maturity structure.

Ultimately, decisions about the Treasury's debt instruments reflect a balance between meeting the government's financing needs and maintaining a well-functioning market. Input from major asset managers like JPMorgan provides valuable perspective on how the Treasury can optimize its issuance program.

As the Treasury evaluates this recommendation, investors, policymakers, and market analysts will be watching closely for any changes. Adjustments to the debt issuance calendar can have ripple effects across financial markets, influencing borrowing costs, investment strategies, and economic benchmarks.