[Financial Times]
US Treasury to end issuance of 30-year bonds By Peronet Despeignes in Washington Published: October 31 2001 15:28 | Last Updated: October 31 2001 17:24
The US Treasury on Wednesday announced it would discontinue its issuance of 30-year bonds in a dramatic testament to how much America's budgetary fortunes have improved over the past twenty years, even in the face of recession fears.
The Treasury said it no longer needed to issue 30-year bonds to meet the government's financing needs. Such an announcement had been anticipated for several years as the government amassed large surpluses, but the actual timing caught markets by surprise, triggering a sharp rise in the price, and a plunge in the yield, of 30-year Treasury bonds. The yield on the paper was at 4.9837 per cent by about 1555 GMT, down 23 basis points.
The announcement followed the government's recent report of a $127.17bn budget surplus for the fiscal year 2001. This compares with the record $236.92bn set in 2000 and is also the first deterioration in the government's fiscal position since 1992, but still the second biggest surplus in US history.
Budget surpluses have led to Treasury debt buybacks and, now, outright cancellations of debt issuance.
Wednesday's announcement comes as economic and political pressures continue to drain government coffers. The economic slowdown is reducing tax revenue and the anti-terrorism campaign is putting upward pressure on government spending and adding to calls for greater and faster tax cuts.
Even as the Treasury announced that it would reduce long-term borrowing it said abrupt funding pressures could force it to increase short-term borrowing and issue shorter-dated Treasuries.
In a written statement, Peter Fisher, US Treasury undersecretary for domestic finance, said the government needed to prepare for "the possibility of a...budget deficit for this [2002] fiscal year and, perhaps, the following fiscal year as well". But Mr Fisher said he bel ieved "the federal government wil return to surprluses in coming years".
The Federal Reserve has struggled to stimulate the economy by reducing its target for short-term interest rates, but long-term interest rates - which define terms on everything from car loans to mortgages - have, until recently, failed to drop in tandem, raising questions about the effectiveness of the monetary stimulus.
There was some speculation that the announcement to cancel the 30-year bond was timed to soften the feared psycholocial blow from the gross domestic product report earlier in the day and to encourage a drop in long-term market interest rates. According to data from commerce department, US GDP declined by an annualised 0.4 per cent in the third quarter, compared with expectations of a 1 per cent contraction.