In periods of low inflation and unusually flat yield curves, issuing ultra-long bonds make sense. The US Treasury Department today confirmed it will resume sales of 30-year bonds in early 2006, after a four-year hiatus. Announced as part of its quarterly refunding statement, Assistant Secretary Timothy S. Bitsberger said:
Treasury is re-introducing regular semi-annual auctions of the 30-year nominal security beginning with a bond that will mature on February 15, 2036.
This announcement was hardly a surprise, of course. Treasury indicated in May that it was considering such a move. Back in March I mused that:
The US Treasury must now regret having stopped issuing 30 year bonds - there is potentially huge appetite among insurers and pension funds seeking to reduce the mismatch between their long-term liabilities and shorter-dated securities. How long, one wonders, before it resumes issuance?
Of course, the decision in 2001 to halt issuance was pretty dumb; John Whitehead and Barry Ritholtz seem to concur. Here's what Barry wrote today:
Let’s not mince words: Canceling the 30 year bonds, when rates were low and heading lower – towards half century lows – will go down in history as one of the most imprudent and irrational bungles ever made by any government anywhere. That’s saying something.
No mincing there, Barry!
Most market practitioners seem to think the new bonds will be lapped up. However the recent dismal experience of the new 50-year gilts issuance suggests a note of caution. For blogging views on today's decision, check out the comments below Barry's and Atrios's post.
UPDATE: Bloomberg report these official comments on bringing back the 30-year bond:
``It was the right decision in 2001 to get rid of the bond, and it is the right decision now to bring it back,'' Timothy Bitsberger, assistant secretary for financial markets, said at a press conference in Washington.
Sure, if you say so Timmy.
And Associated Press has an interesting Q&A piece, which includes this observation from Greg McBride, a financial analyst with Bankrate.com:
If the 30-year bonds were on sale today, he said, "the difference between short-term and long-term interest rates is not enough to compensate the investor for tying up money for so many years."
Right now, for example, a consumer can earn more than 4 percent on some one-year bank certificates of deposit compared with a 4.3 percent yield on the 10-year Treasury note. "There's little incentive to go long," McBride said.
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