Primary dealers may revisit the issue of the 30-year bond at primary dealer meetings with the Treasury at the end of the month. Dealers and investors alike think the long bond may return, with yields on the long end relatively low and the yield curve very flat. "It makes sense to issue 30-year debt with the long bond at the historical low end of the yield range," said Thomas Tucci, executive director of fixed income at Mizuho Securities, a primary dealer.
To be sure, the Treasury has often rejected the idea of reissuing the 30-year. However, the primary dealer meeting agenda--which should be released in the next week or so-- may revisit the issue, according to one trader. At the very least, he said dealers will bring up the issue again with the Treasury.
The Treasury stopped issuing the long bond in October 2001 to cut funding costs during a time of budget surplus. The office has repeatedly rejected the idea of bringing back the long bond because it would be seen as an admission of a mistake in handling fiscal matters to go from a large surplus to a record deficit.
Demand for the 30-year comes after France recently issued its first 50-year bond, which drew three times as many bids as the amount offered. And Credit Suisse First Boston recently published a report arguing issuance of a 30-year and a one-year bond would be cheaper than issuing a five-year note, which is roughly the average life of the Treasury's debt. "It makes sense for the Treasury to lock in funding at low interest rates," said Bill Tedford, fixed-income strategist at Stephens Capital Management. Tedford believes the long bond could return to its benchmark status of having the most liquidity in the market once reissued, depending on the Treasury's commitment to that part of the yield curve. "After years and years of issuance the 10-year is more liquid, but [the long bond] could creep back," he said.
Rob Nichols, Treasury spokesman, would say only the Treasury has not changed its policy on the 30-year.