30-year bond coming back

Jeannine Aversa

Wednesday, Aug. 3, 2005 | 9:19 a.m.

WASHINGTON -- The Bush administration announced today that it is bringing back the 30-year Treasury bond next year, a move that would help finance the national debt and should hold appeal for 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.

"We believe this is a prudent debt management step that will continue to allow Treasury to finance the government's borrowing needs at the lowest cost over time," said Randal Quarles, the department's undersecretary for domestic finance.

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. After that, though, it has racked up record amounts of red ink, helping to push up the national debt, which now stands at $7.8 trillion.

The department did not say how much in 30-year bonds it plans to sell next 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 currently low and 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 so-called "rollover risk," analysts said.

The bond industry, which urged the department to revive the long bond, said 30-year bonds are a good asset for pension funds, insurance companies and other investors to round out investment portfolios and hedge risk.

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, bond experts say.

Treasury needs to 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 pay for 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.

With the economy now on a solid growth path and tax revenues growing, the White House recently lowered its projection for the federal budget deficit for this year to $333 billion, down from an initial estimate of $427 billion. Last year, the government ran up $412 billion in red ink, a record in dollar terms.

The announcement on the long bond, which was expected, came as the department considered the government's financing needs, something its does on a quarterly basis.

To that end, Treasury said it will auction $44 billion in notes next week.

On Monday it will sell $18 billion in three-year notes, maturing Aug. 15, 2008. On Wednesday it will auction $13 billion in five-year notes, maturing Aug. 15, 2010. And on Thursday the government will sell $13 billion in 10-year notes, maturing on Aug. 15, 2015.