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The Return of the 30 Year Bond

Wednesday, August 03, 2005 | 11:26 AM

in Economy | Fixed Income/Interest Rates | Politics

Return_of_the_long_bond Let’s not mince words: Canceling the 30 year bonds, when rates were low and heading lower – towards half century lows – will go down in history as one of the most imprudent and irrational bungles ever made by any government anywhere. That’s saying something.

It also points out the foibles of a problem us Humana Beans (and bean counters) have: Our tendency to over-emphasize recent data, at the expense of longer trends. We’ve discussed this in the past.

Despite an historical Federal deficit (a half century worth and rising), the surplus of cash following an enormous tech bubble was hardly an intelligent basis for canceling our primary and least expensive deficit funding mechanism, and we said as much at the time. To draw the conclusion that the U.S.’ budget deficit was not structural but cyclical requires a kind of optimism that is hard to reconcile with real life experience. Call it the triumph of the economic idealogues over reality. This is not revisionism, but something we discussed way back when.

Anyone can be wrong. What is unacceptable, as a famous hedge fund manager once said, was staying wrong. When interest rates hit 40-year lows 2 years ago, its all but unthinkable that Treasury didn’t bring back the 30 year.

Up until now, everyone in America got to refinance their debt at ultra low rates – except Uncle Sam. As taxpayers, we now can join homeowners, consumers and business in starting to clean up, however belatedly, our national balance sheets.

Note that’s not the same as reducing our debt – all we are doing, in very small $30 billion steps, is lowering our interest servicing. Still, saving a few percent on $30B ain’t chicken feed. To paraphrase Senator Everett Dirksen, save a few percent in interest payments on $30 billion here and $30 billion there, and soon you're talking about real money . . .

UPDATE: August 4, 2005 10:01 am
A quickie: I've been reading all your comments, and I promise to address them (been on the go for the past 48 hours, moving offices and otherwise running around, and it won't get better til Monday).

The one thing I have to laugh about is the accusation of conspiracy theories; As I wrote just last month:

"While conspiracy theories may be sexy, the reality is far more mundane. Its all there if you have the temerity to dig thru endless data (eternal vigilence and all that). This must be terribly disapppointing to the black helicopter/tinfoil hat crowd.

The amazing thing is that most people don't bother. By "most people," I am referring to the economists, journalists, strategists and fund managers who trade off of this data."

You can read the post in its entirety here; the more ambitious can dig thru this (State Math doesn't add up) and this (Data Point versus Trend).

Lastly, what's an update without a chart:
click for larger graphic

Graphic courtesy of NYT

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Listed below are links to weblogs that reference The Return of the 30 Year Bond:

» That Didn't Last Long from Eschaton
Treasury to sell 30 yr. bonds again. [Read More]

Tracked on Aug 3, 2005 2:14:46 PM

» Thirty year Treasuries are back from New Economist
In periods of low inflation and unusually flat yield curves, issuing ultra-long bonds make sense. The US Treasury Department today confirmed it will resume sales of 30-year bonds in early 2006, after a four-year hiatus. Announced as part of its quarter... [Read More]

Tracked on Aug 3, 2005 9:40:34 PM