30-year Treasury bonds to return Feb. 9

/ Source: The Associated Press

The Bush administration, faced with the need to finance a rising federal budget deficit, announced Wednesday it will bring back the 30-year bond next week.

The initial sale of $14 billion of the securities, on Feb. 9, will mark the first time the government has sold the long-term bonds in five years.

Analysts predicted they would receive a good reception from investors who have been seeking ways to lock in guaranteed returns for a longer period.

The 30-year bond was discontinued in 2001, when the government was running large budget surpluses and did not need to borrow as much as it had in previous years of high deficits.

However, 2001 was the last year of surplus as recession, war and President Bush's first-term tax cuts pushed the budget back into the red.

The deficit hit a record of $413 billion in 2004 before declining last year to $319 billion.

The administration is projecting this year's deficit will top $400 billion, the second highest on record, pushed upward by spending to rebuild the hurricane-devastated Gulf Coast.

The White House decided last August that it would bring back the 30-year bond but did not supply details until this week on how large the debt auction would be.

Emil Henry, the Treasury Department's assistant secretary for financial institutions, told reporters the $14 billion figure was arrived at after extensive discussions with securities dealers. "We're very comfortable with it," he said.

Treasury officials said the government intends to auction between $20 billion and $30 billion in 30-year bonds this year, with the second auction scheduled for August.

Analysts said taxpayers will end up saving money on the first sales because long-term interest rates have not risen as much as would be expected, given the 19-month-long campaign by the Federal Reserve to boost short-term rates. Former Fed Chairman Alan Greenspan called that development a "conundrum."

"It is a good time for the government to start locking in long-term rates before they go higher," said David Wyss, chief economist for Standard & Poor's in New York. "Corporations are doing it, so why shouldn't the government?"

The $14 billion in sales of 30-year bonds will be part of a series of auctions next week known as the government's quarterly refunding, which will raise $48 billion.

Treasury repeated its projection that it expects to borrow a record $188 billion during this January-March quarter.

The department said it still expects to hit the current debt ceiling of $8.18 trillion by the middle of February. Through bookkeeping maneuvers, it will be able to keep borrowing money until mid-March, when the administration says Congress will have to pass legislation to raise the debt limit.

Democrats are hoping to use the battle to raise the debt limit to highlight their arguments that the large tax cuts passed during Bush's first term in office were irresponsible.

The administration contends that those tax cuts were needed to get the country out of the 2001 recession. Bush used his State of the Union message Tuesday night to urge Congress to make those tax cuts permanent.

In addition to the 30-year bond, Treasury said it will sell $21 billion in three-year notes and $13 billion in 10-year notes next week. Officials said the debt limit will not need to be raised to handle next week's auctions.