The Bonds That Bind Us

The Treasury, which told me last year that selling 30-year bonds would be a bad idea, now says that the world has changed since 2001--or even since 2004. "Canceling it was the right decision, and bringing it back was the right decision," a spokeswoman said.

Unlike corporations, which can borrow money opportunistically, the Treasury announces its plans long in advance. For instance, it said in early November that it will sell 30-year bonds next February. As this article went to press, the interest differential between 10-year Treasury notes and the longest-maturity T-bond was a sixth of a percentage point. That would make selling 30-year securities attractive, compared with selling three sets of 10-year securities. What will the difference be when February's bond sale rolls around? Who can say?

And there's a lot of volatility in the spread between the 10- and 30-year rates. On June 13, 2003, the 30-year rate was a whopping 1.06 points higher than the 10-year rate. I'm picking that date because that's when Federal Reserve chairman-designate Ben Bernanke, then a member of the Fed board of governors, tried to drive down long-term rates by threatening to have the Fed print money to buy up Treasury bonds. That would have been a terrible time to sell 30-year securities rather than 10-year ones--but the government would have had no choice but to issue them had it scheduled a sale. Two years later, the difference was just 28 hundredths of a point.

The bottom line: given how much we've got to borrow to cover our enormous budget deficits, we need all the bond buyers we can find. To me, the question isn't whether we should be selling 30-year bonds. That was long overdue. My question is whether we'll see 50- or 100-year Treasury bonds appear one of these days. Stay tuned.

Sloan is NEWSWEEK's Wall Street editor. His e-mail is sloan@panix.com.

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