Thursday, May 05, 2005


Return of the 30-Year T-Bond

A horror story scarier than anything Wes Craven's ever made. In 2001, thanks to Bill Clinton's deficit-reduction work, the Treasury Department decided that it didn't need to issue 30-year bonds any more. But four years later, Bush has run up huge deficits while giving huge tax breaks to his already-richer-than-God buddies, so Gueeeesss whaaaaat? It's baaaaaaack:

NEW YORK - Longer-dated Treasury debt plummeted on Wednesday after the government startled investors by saying it was considering resuming issuance of 30-year bonds. Regular sales of the long bond were suspended in 2001, so news of its possible reintroduction sent traders scrambling to reevaluate its fair market value. Thirty-year debt prices US30YTRR dived 1-25/32 for a yield of 4.59 per cent, down from a session high of 4.68 per cent but up sharply from 4.49 per cent at Tuesday’s close. Benchmark 10-year Treasury notes US10YTRR also took a hit, albeit more moderate, as traders scrambled to unwind popular recent bets that short-term yields would rise more quickly than longer-dated ones. Known as curve-flattening trades, such bets were rendered untenable by news that fresh longer-dated supply might be on its way. "It’s a complete shock," said Sadakichi Robbins, head of global fixed-income at Julius Baer in New York. "An awful lot of people have been playing curve trades and this is going to cause them a lot of pain."
And that's not the worst of it. Not by a long shot.

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