The 30-year U.S. Treasury bond is coming back next year after a four-year absence.
The resurrection of the so-called "long" bond, announced this morning by Bush administration officials, will widen the government's debt offerings, hold down borrowing costs and attract investors searching for a safe, longer-term investment to add to their portfolios, analysts said. The move was expected.
The Treasury Department said the first long-bond auction will take place in the first quarter of next year, with subsequent auctions twice a year.
The 30-year bond, which the government first began selling in 1977, was suspended in October 2001, which was the last year the government produced a government surplus. After that time, the government has incurred record amounts of debt. The national debt now stands at $7.8 trillion.
The bond's return comes as the Treasury cuts its funding needs for this quarter by $7 billion from last quarter. The government is issuing less debt as the budget deficit narrows for the first time since President Bush came to power.
"We believe this is a prudent debt management step that will continue to allow Treasury to finance the government's borrowing needs at the lowest cost over time," said Randal Quarles, the Treasury Department's undersecretary for domestic finance.
"The decision is based on our commitment to prudent debt management, our desire to maintain a cost effective and diversified debt portfolio," Treasury Secretary John Snow told reporters during a trip to Brazil. "We plan semi-annual auctions of relatively modest size, beginning in February."
Analysts said bringing back the long bond made sense for various reasons. One, because long-term interest rates are currently low, the government has the opportunity to borrow money at attractive rates.
Secondly, by issuing the 30-year bond, the government gives itself the ability to refinance shorter-term debt. Refinancing shorter-term debt with longer-term debt locked in at a particular rate can shield the government from what is called "rollover risk," analysts said.
The bond industry had urged the government to resurrect the long bond. Currently, the government's longest maturity is a 20-year inflation-indexed bond.
The bond industry describes the long bond as a good asset for pension funds, insurance companies and other investors looking to round out their portfolios. With the massive wave of baby-boomers about to reach retirement, demand for safe, long-term investments should increase, analysts say. Other countries are also offering longer-term government securities to meet demand.
News services contributed to this report.