First Sale of 30-Year Bond Well Received

The Treasury’s sale of 30-year bonds on Thursday met with robust demand as pension funds and insurance companies apparently stepped up to buy the first such long-term securities issued in more than four years.

The $14 billion in bonds were sold at an annualized yield of 4.53%, slightly below the level many analysts had expected.

Randal Quarles, the Treasury’s undersecretary for domestic finance, said the auction “went superbly.”

The bond sale had been highly anticipated on Wall Street because it was the first such offering since 2001, when the Treasury stopped issuing 30-year securities amid budget surpluses.

Now, faced with heavy sustained borrowing for years to come -- and a budget deficit estimated at $423 billion this year alone -- the Treasury brought back the 30-year bond as a way to stretch out its debt repayment schedule. Since 2001, the longest-term conventional security issued by the Treasury has been the 10-year note.

The return of the 30-year bond has coincided with a rising appetite for long-term fixed-rate securities on the part of pension funds and insurance companies worldwide as they seek to better match their portfolio assets with their long-term liabilities, including what they’ll owe retirees in the next few decades.

In Thursday’s auction, U.S. and foreign money managers, in a rare move, bid boldly enough to win 65% of the bonds. They elbowed aside the Wall Street dealers that typically buy the bulk of the bonds, usually to resell them.

By contrast, money managers and other non-dealer bidders bought 40% of the 10-year notes the Treasury sold Wednesday.

Pension funds and other large investors “wanted to buy bonds and they bid aggressively to own them,” said Richard Gilhooly, a bond strategist at BNP Paribas Securities in New York.

One measure of demand: Investors were willing to accept a yield of 4.53% even though the 30-year T-bond sold in 2001, now a 25-year bond, was yielding 4.65% in the market Thursday.

The Treasury plans another 30-year bond sale later this year.

Reuters and Bloomberg News were used in compiling this report.