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30-year bond may make its comeback Wednesday

30-year bond may make its comeback Wednesday
Posted 8/2/2005 11:20 AM

WASHINGTON (Reuters) — The Treasury Department is likely to revive the 30-year bond on Wednesday in a bid to lock in low financing costs and satisfy market demand for longer-dated debt, financial analysts say.

The Bush administration ended 30-year bond sales in October 2001 in anticipation of lower borrowing needs in an era of budget surpluses. Bond dealers and investors have since clamored for its return to help deepen and anchor markets for long-term debt like mortgage-backed securities.

In a nod to Wall Street pressure, and facing large budget deficits that followed a recession, stock market collapse, tax cuts and huge war costs, the Treasury Department said in May it was considering bringing back the 30-year bond to give the government more borrowing flexibility.

Analysts say traders and dealers, who normally watch the Treasury's quarterly refunding statements to learn the size of upcoming auctions, will focus instead Wednesday morning on the long bond's expected return.

"Wednesday is the day that bond traders have been dreaming about since Halloween 2001, when Treasury stunned (Wall Street) by announcing that bond issuance was being suspended," RBS Greenwich Capital chief economist Stephen Stanley said in a research note entitled "Welcome Back, Bonds."

"While Wednesday will represent the formal nod, our view has been that the decision has been a fait accompli since the May refunding announcement," Stanley said.

The Bond Market Association said last week that issuing bonds would help shield the government from rising financing costs as interest rates rise.

The industry group also said a reinstated 30-year bond would attract those seeking safe investments with good rates of return, including a growing number of retiring Americans, and bring in traders looking to swap long-dated instruments.

Citing strong tax receipts and more issuances of state and local government securities, the Treasury Department said Monday it would need to borrow $59 billion from July to September, far less than it had forecast in May, and another $97 billion in the October-to-December quarter.

Lehman Bros. said that although tax receipts have risen this year, improving the U.S. fiscal deficit outlook, there is more than enough room in the market for the 30-year bonds, which would be sold twice yearly starting in February 2006.

"The cuts the Treasury has already made to its issuance schedule have already more than compensated for the improvement in the budget situation," Lehman said in a note to clients.


LINK: http://www.usatoday.com/money/perfi/bonds/2005-08-02-30-year-bond_x.htm