Five questions: Indiana treasurer ponders course for yield rise

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Richard Mourdock, a 62-year-old geologist and former coal-mining executive in his second term as Indiana’s Republican treasurer, has plenty to brag about.

The Hoosier State’s economy has been outpacing Illinois and Iowa since the recession ended in 2009, according to data compiled by Bloomberg. Its state and local bonds are also beating the $3.7 trillion U.S. municipal-debt market, with last year’s 2.1-percent decline versus a 2.6-percent drop for the Standard & Poor’s Municipal Bond index.

Indiana’s rebound comes amid the auto industry’s recovery as well as passage last year of the biggest tax cut in state history, including a 5-percent reduction of the levy on income. Gov. Mike Pence, a 54-year-old Republican, on Jan. 14 called for phasing out the tax on business owners’ equipment.

Mourdock was first elected treasurer in 2006 and was re-elected in 2010. A foe of the federal bailout of Chrysler Corp., he lost a U.S. Senate race in 2012 to Democrat Joe Donnelly and will leave the office next year because of term limits. The following is condensed from a recent phone interview:

Q: As the chief investment officer managing $7 billion in state funds, you are restricted by the state constitution to U.S. government and U.S. agency securities. What are you doing to maximize returns as the Federal Reserve keeps its benchmark rate at almost zero?

A: The world being upside down as it is, we certainly have more money in deposit accounts right now than we’ve had in the past. We actually earn better interest there than we do from our normal federal paper.

Q: What would you do if the U.S. economic recovery spurs a rise in interest rates? How would you adjust the maturity of your holdings?

A: It’s all going to be about watching and measuring duration. So we’ll be adjusting duration, I suspect, trying to match the environment. We’d probably be looking at going out somewhat. We don’t trade much stuff; we generally hold it to maturity. So if we can find a way in increasing rates to start sliding a few things that way, we’d likely do so.

Q: How should Pence and his administration handle repaying to the federal government the $1.4 billion Indiana borrowed for unemployment benefits?

A: There will be real consideration of doing a bond issue to try to deal with that. With the potential of the rising-rate environment, I think it would be a good time for them to consider that. And if they ask me my advice, I would certainly suggest they take a serious look.

Q: During an October 2012 debate for your Senate race, you answered a question about pregnancy from rape by saying life is a gift from God. You later said your statement was twisted by opponents to suggest God pre-ordains rape. What was your lesson from that incident?

A: If there is a moral to that story in a political sense, sometimes you just need to express less rather than more. That goes against my nature; I’m a pretty transparent person. And sometimes as a candidate, unfortunately, transparency is not necessarily an attribute.

Q: You have a master’s degree in geology from Ball State University and worked in the energy business for 30 years. Has there been a time when you were able to apply your experience as a geologist to your work as treasurer?

A: I learned years ago as a geologist the fundamental fact of economics is that all wealth comes from the earth. It comes from what we grow, what we harvest, what we dig up, what we mine, what we pump, what we produce. And then we put it in this chain of events we call our economy. Having that bit of background, I think, has always given me a unique look at the world of finance.

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