- The Washington Times - Wednesday, August 3, 2005


The government is bringing back the 30-year Treasury bond next year, a move that would help finance the national debt and should appeal to investors looking for a safe, longer-term investment option in their portfolios.

The Treasury Department said the first auction of the 30-year bond will take place in the first quarter of 2006, with auctions held twice a year.

Treasury Secretary John W. Snow said the decision to revive the bond was based on “our commitment to prudent debt management and our desire to maintain cost-effective and diversified portfolios.”

The United States stopped selling the “long” bond in October 2001, which turned out to be the last year the government produced a budget surplus. Since then, it has spilled record amounts of red ink, helping to push up the national debt, which now stands at $7.8 trillion.

Timothy Bitsberger, the department’s assistance secretary for financial markets, told reporters at a briefing that Treasury anticipates that $20 billion to $30 billion in 30-year bonds would be sold each year.

Analysts said resurrecting the 30-year bond, which the government first began selling in 1977, makes sense from a number of perspectives. Long-term interest rates are low. If they stay that way, the government would have an opportunity to borrow money at a very attractive rate.

Similarly, by issuing 30-year bonds the government would have the ability to refinance shorter-term debt — which can expose the government to higher financing costs if interest rates rise. Refinancing shorter-term debt with longer-term debt that is locked in at a particular rate could help shield the government from “rollover risk,” analysts said.

Moreover, 30-year bonds are a good asset for pension funds, insurance companies and other investors to round out investment portfolios and hedge risk, bond experts said.

With the big wave of upcoming retirees coming from the baby boom generation, demand for a safe, longer-term, government bond is likely to increase, the experts said.

Currently, the government’s longest maturity is a 20-year inflation-indexed bond.

Other countries also are offering longer-term government securities to tap growing demand, according to the bond experts. France, for instance, has a new 50-year bond.

Asked whether this might be something for the United States to consider, Mr. Bitsberger responded: “Fifty-year bonds are not on the table.” Treasury focused on 30-year bonds because they “have an existing brand name for us. It is an established market,” Mr. Bitsberger said. “Thirty-year bonds have a good track record in the marketplace and it just makes sense to stick to them.”

The Bond Market Association, which urged the government to bring back the long bond, applauded the announcement.

Treasury must borrow to finance the daily operations of government, including meeting interest payments on the national debt.

This debt has swelled as budget deficits grew to offset the president’s tax cuts and fighting terrorism at home and overseas. The administration says the tax cuts helped cushion the blow of the 2001 recession and helped the economy recover from the downturn.

Most experts believe the comeback of the 30-year bond will have little effect on demand for the benchmark 10-year Treasury note.



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