Low rates are history - US Treasury plans reintroduction of 30-year maturities

Wednesday, May 04, 2005

Taking the issuance of long term maturity bonds of various nations in the recent past as gauge, the "fairly low", so Alan Greenspan in a testimonial earlier this year, interest rates are becoming history. The US Treasury today announced it is considering the reintroduction of 30-year bonds with the first offering scheduled for February 2006. The final decision will be taken on August 3. Other countries have travelled the road of longer maturities already and fared well.
After becoming the first European country to show an interest in issuing 50-year bonds, the UK's debt management office (DMO) has announced that it will issue conventional and index-linked 50-year gilts. The first deal will come in May, european pensions & investment news reported in late March already.
The French treasury had reason to celebrate still earlier. Its issue of a 6 billion Euro 50-year bond last March was more than three times oversubscribed, though yield was just a mere 3 basis points higher than on France's 30-year debt papers. France originally had only planned a 3 billion issue. But when money comes that cheap...
Valuing government treasurers as an especially reliable source for interest rate and foreign exchange trends - Austria did famously well with Yen-issues in the 1990's - the rush to issue such extreme maturities might indicate that the period of superficially cheap credit might be over soon er than we are made to believe.
Supranational institutions seem to share the view that the low in interest rates lies in the past. The European Investment Bank yesterday announced plans to issue its first bond with a 30-year maturity to tap into demand for long-dated assets among institutional investors in Europe with a volume of three billion Euros. Its longest maturity to date is a 15-year issue. 30-year German Bunds yielded 3.93 percent earlier this week after they had seen a historic low yield of 3.47 percent in February.
The first issuer of a 50-year bond this year was Telecom Italia. It raised 850 million Euros with the issue that carries a coupon of 5.25 percent.
The announcement of the plans of the Treasury led to a steepening yield curve with the latest 30-year yield rising 10 basis points after an initial 50 basis point spike to 5.02 percent. The US Treasury had suspended 30-year issues on Halloween 2001.


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