The 30-year Treasury bond may be making a comeback. The Bush administration, which had stopped selling the bonds in October 2001, said yesterday...
WASHINGTON — The 30-year Treasury bond may be making a comeback.
The Bush administration, which had stopped selling the bonds in October 2001, said yesterday that it was seriously considering bringing them back as the government faces the need to finance record budget deficits.
Bond traders hailed the announcement, saying the action was overdue and would provide investors with a fresh supply of long-term bonds. The price of existing 30-year bonds, which continue to be traded, plunged yesterday immediately after the announcement.
Officials said that drop in price, which pushed the yield of the bonds higher, was probably only a temporary reaction to the prospect that the supply of the bonds will soon be increasing. The price fell $18.13 per $1,000 yesterday, pushing the yield to 4.59 percent, up from 4.48 percent a day earlier, according to Moneyline Telerate.
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The government stopped selling the bond in October 2001, the fourth and last year the government ran a budget surplus. It was a time when the government said it did not need as many different types of securities since borrowing needs were falling.
Timothy Bitsberger, assistant Treasury secretary for financial markets, said that after taking public comments, the Treasury will decide whether to bring back the bond Aug. 3, the date the government will announce its borrowing plans for that quarter.
If the answer is yes — and private market officials think it will be — then the first auction will take place in February 2006 with auctions held twice a year, Bitsberger told reporters.
Though the decision won’t be made for a few months, investors including Kevin McKenna of Merrill Lynch & Co. considered it largely a done deal.
“Treasury has completely reversed its message to the market,” said McKenna, who oversees $165 billion as head of fixed income for the Americas at firm’s asset-management arm in Plainsboro, New Jersey. “When the world’s most important borrower changes anything about its message, it’s important. I’m thinking they’re going to do it.”
If the auctions are held next year, Bitsberger said, the amount of 30-year bonds offered for sale would be between $20 billion and $30 billion.
The Treasury started selling the 30-year bond in 1977 as rising deficits made it necessary for the government to look for new ways to package the debt.
The government stopped selling the 30-year bond during a period when the government was running a string of four surpluses, something that had not happened since the 1920s.
Because of the surpluses, there was not as much need for so many maturity lengths of Treasury bills, notes and bonds.
While Treasury is now selling a 20-year, inflation-indexed bond, it is offered only in limited amounts. The benchmark long-term security now is the 10-year Treasury note.
Micah Green, president of the Bond Market Association, praised the government’s announcement, saying a survey done by the association indicated there would be heavy demand.
“Investors such as pension funds and insurance companies have a strong appetite for long dated securities,” Green said.
Investors recently began betting the department would need longer-term securities to pay for the deficits, rework Social Security and pension programs, and compete with longer-term debt issued this year in Europe. The average maturity on U.S. debt fell has fallen to 53 months from 70 months in October 2001.
Analysts noted that the U.S. move would follow moves in other countries to meet this demand. France this year auctioned a 50-year bond.
“The market wants a 30-year bond,” said David Wyss, chief economist at Standard & Poor’s.
Wyss compared the proposal to a homeowner refinancing a mortgage when interest rates drop. But he said it would have made more sense to make the change two years ago, when long-term rates were even lower.