U.S. Treasury Says It May Reintroduce 30-Year Bond

[swag]

http://www.nytimes.com/reuters/business/business-economy-debt-bond.html?hp&ex=1115265600&en=9b6f6522994dd3a0&ei=5094&partner=homepage

WASHINGTON (Reuters) - The U.S. Treasury said on Wednesday it is considering reintroducing regular issues of 30-year bonds and will announce a decision Aug. 3.

The announcement was unexpected, as Bush administration officials had said until recently they believed U.S. debt issuance was varied enough to satisfy appetite for longer-dated securities.

. . .

The Bush administration scrapped the longer-dated security in 2001 as a cost-saving measure, saying it no longer required the bond to satisfy borrowing needs.

But after years of mounting budget deficits -- fueled by recession, a stock market collapse, the costs of war and tax cuts -- bond markets began clamoring for reintroduction of the 30-year bond to support the long end of the market.

. . . more

[DrDebug]

1. I thought that long term bonds were more volatile for inflation

And it looks like inflation is the thing which is most likely to rise in the coming years, so why does it say that the market wants longer bonds?

[swag]

5. A Bloomberg article has a few answers for you

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a6SYe9K_xBDM&refer=home

. . .

The return of the bond may mean additional profit for securities firms seeking to extend a three-year boom in fixed- income trading, which accounts for between 10 percent and 35 percent of their annual revenue. The bond also boosts earnings by allowing longer-term hedging transactions and by providing investments to sell to clients. The bond also would create competition for long-term debt issued this year in Europe.

``The Treasury is right in reconsidering its earlier decision,'' said Micah Green, chief executive officer of the Bond Market Association, in an interview. ``There's clearly demand for longer-term paper throughout the world. We have always believed that the 30-year Treasury is an important tool.''
. . .

Demand for existing 30-year bonds has made it the year's best- performing Treasury security. As of yesterday it had returned 6.6 percent, compared with a gain of 1.2 percent for Treasuries overall. The 30-year's gain is now about 6.1 percent.
. . .

Wall Street's biggest winners would be the largest brokerages and investment banks among the Treasury's 22 primary dealers, said E. Craig Coats, co-head of fixed income at Keefe, Bruyette & Wood Inc., a New York investment bank. Such dealers meet with the Treasury and underwrite sales, bidding directly on regularly auctioned U.S. bills and notes.
. . .
Peter Fisher, then the Treasury's undersecretary for domestic finance, announced the end of new sales of the 30-year bond in October 2001, and Treasury Secretary John Snow vowed not to reissue it after he joined the department 16 months later. At the time, Treasury officials called the 30-year too costly. The government pays higher interest on bonds than on short-term debt to compensate for the longer-term risk.

At the time the bond was eliminated, the bipartisan Congressional Budget Office was projecting budget surpluses would grow to $5.6 trillion by 2011.
. . .
``It's an excuse for Democrats to talk about the deficit and the debt and failed fiscal policies,'' Collender said.

[cornfedyank]

9. what is it? 2 balanced budgets, out of the last 30.

"At the time the bond was eliminated, the bipartisan Congressional Budget Office was projecting budget surpluses would grow to $5.6 trillion by 2011." ....extrapolation can be fun.

[BR_Parkway]

2. These would be the "worthless" IOU's Shrubbie's been tooling

all over the country holding Campaign rallies citizen information meetings about?

[fertilizeonarbusto]

3. I was thinking the same thing n/t

[Mr.Green93]

4. Most likely

they will never be redeemed for there will be no u.s. in 30 years.

[burn the bush]

6. let the pugs buy them. I don't trust anything that is backed up by this

regime.

[swag]

7. This is a big acknowledgment by Treasury that financing the deficits

that were created by Bush, Hastert, Frist and friends is becoming a huge problem. So they're hoping bond buyers will loan them money for 30 years before long-term interest rates kick in.

Recall the smugness of Bush & Co. when they killed the long bond while they were still sitting on the Clinton surplus.

Team Bush's fiscal policies have been disastrous, and now they're scrambling to find a way out.

[quaoar]

8. NY Times article

http://www.nytimes.com/2005/05/04/business/04cnd-bond.html?hp&ex=1115265600&en=e1b33178b1da9ebd&ei=5094&partner=homepage

U.S. Treasury Says It May Reintroduce 30-Year Bond
By JONATHAN FUERBRINGER

In a surprise announcement that roiled the bond market and cost some traders and investors millions of dollars in losses, the Treasury Department announced today that it was considering whether to resume selling the 30-year bond, the one-time benchmark of the world's largest bond market.

The resurrection of the 30-year bond, which the Treasury stopped issuing in October 2001, comes as the Treasury confronts the enormous borrowing needs to cover the federal budget deficit. Treasury officials said today that the bond would help them be more flexible in their borrowing, which would lower costs for taxpayers.

But regular issuance of 30-year bonds also could have enormous implications for Wall Street, pension funds and millions of aging Americans.

For Wall Street, the 30-year bond is a long-term security that is more volatile than shorter-term securities. And Wall Street traders love volatility because it is an opportunity to make money.