U.S. Undecided on New Effort to Sell S&L; Bonds

The jury is out on whether the Resolution Funding Corp. will try another auction of 40-year bonds to fund the rescue of the nation’s crippled savings and loans, officials and analysts said today.

The government’s second auction of the bonds met a poor response Tuesday when $3.5 billion in the securities were sold at an average yield of 8.89%. The first 40-year auction, Jan. 23, was also disappointing.

“Common sense would tell the Treasury to try something else, but I’m not sure common sense rules in Washington,” said Barbara Kenworthy, a bond portfolio manager at Dreyfus Corp. in New York. “I suspect there will be another.”

Most of the buyers appeared to be retail houses and insurance companies, she said.

But the official line in the nation’s capital indicates that the government is reassessing the situation.

“No decision has been made on whether the next auction will be a 40-year bond,” said Diane Casey, a spokeswoman for the Resolution Trust Corp., which is closing and selling failed thrifts.

The decision “will be based on contacts (on Wall Street) and the feeling of what the market will be,” Casey said. “The decision to go 40 years wasn’t made unilaterally. It was made with the Street.”

“The Treasury Department is sensitive to that,” she added.

There appear to be two major problems with the bonds--the long maturity and a rather weak government guarantee.

“It’s 40 years--that’s a big problem,” Robert Brusca, chief economist at Nikko Securities International in New York. “That’s a long-dated piece of paper.”