Treasury Mulls Reintroducing 30-Year Bond

The U.S. Treasury (search) said on Wednesday it is considering reintroducing regular issues of 30-year bonds (search) 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.

"Treasury is considering whether or not to reintroduce regular issuance of a 30-year nominal Treasury bond," Assistant Secretary for Financial Markets Timothy Bitsberger said in a statement.

"We will examine if we have flexibility to issue 30-year bonds while maintaining deep and liquid markets in our other securities and determine if nominal bond issuance is cost effective," he added.

The Treasury said it was considering semiannual auctions of a 30-year nominal security beginning February 2006. It announced suspension of the 30-year bond in October 2001, with the last auction having taken place in August that year.

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.

Many European countries have or are considering longer-dated debt. France issued a 50-year bond in February, Britain has said it intends to sell half-century paper this year, and Germany is mulling a 50-year issue.

Bitsberger, during a meeting on Tuesday with the Bond Market Association's (search) Treasury borrowing advisory committee, said Treasury was contemplating either no reintroduction or semi-annual issuance of $20 billion to $30 billion in 30-year securities, according to minutes of the meeting released by Treasury.

The prospect of a fresh supply of U.S. debt surprised bond markets and sent the 30-year bond down 1-24/32 in price in hectic trade, while yields rose to 4.60 percent from 4.49 percent on Tuesday. The 10-year note lost 15/32, lifting yields to 4.22 percent from 4.17 percent.

The Treasury also said on Wednesday it will sell $51 billion in securities in its quarterly series of "refunding" auctions next week.

The Treasury said it will sell $22 billion of three-year notes on Tuesday, May 10; $15 billion of five-year notes on Wednesday, May 11; and $14 billion of 10-year notes on Thursday, May 12.

The auction will refund $39.6 billion of publicly held securities and government account holdings maturing or called on May 15, and raising about $11.4 billion in new cash.

Analysts had been expecting the Treasury to keep the sale amount at about the $51 billion sold in February's refunding auctions.

Most bond dealers advising the Treasury said they favored the reintroduction of the 30-year bond.

"Most members felt that given the decline in the average maturity of debt and the likelihood that it will decline further in coming years, a reintroduction would give the Treasury greater flexibility with a modest associated cost," the advisory committee said in a report to Treasury Secretary John Snow (search).

They also said they believed issuing the longer-dated security would help cushion risks associated with the large number of bonds maturing in coming years.