Three-year Treasuries could experience a short-term bounce if and when the Treasury decides to bring back the 30-year. Market observers are speculating renewed sales of the long bond may cut into the three-year's supply, which would provide a boost in the near term. Of course, the scarcity value may eventually be offset and then some by an illiquidity discount in the long run, according to Ken Fan, interest-rate strategist at ABN AMRO.
The Treasury recently announced it was considering issuing $20-30 billion in 30-years without affecting supply in other parts of the curve. Yet, it would obviously need to adjust its refunding plans to fit the long bond and three years are the mostly likely to have reduced issuance because they are the least important benchmark on the curve, Fan said.
TIPS could also potentially be cut, but given the Treasury's stated commitment to the product, Fan sees this as a less likely scenario.
