[anyone know what they mean in the last sentence, "reduced supply" of what? "wider spreads" with between corp bonds and treasuries? I just read today that spreads had tightened. I assume this announcement means the 30-yr will be back pretty soon.
US Treasury has no plans to resume 30-yr bond; would take 'extreme situation' WASHINGTON (AFX) - Only an extreme borrowing need situation would cause the US Treasury Department to resurrect 30-year bond issuance, a Treasury official said. "It would have to be a quite extreme situation," the official said, speaking to reporters on condition of anonymity about the Treasury's quarterly refunding announcement. There is "no consideration (and) no need" to bring back the 30-year bond, despite the marked deterioration in the federal budget to large budget deficits. Asked about projections for the federal government's debt level to next hit the statutory limit, the official said the ceiling will most likely be hit next March. In a worst case scenario, the 6.4 trln usd ceiling could be reached in December, he said. The Congress raised the limit by 450 bln usd earlier this year after a protracted political struggle. That increase did not end the situation, the official said, explaining that "the vampires aren't dead: the sun just came up." Under the most optimistic scenario, the limit will not be reached until June. The official also said that Treasury's move to boost 10-year note issuance and end the "re-opening" policy for the 10-year security is not a sign that Treasury does not believe the budget will return to surplus in coming years. Some members of the Treasury's borrowing advisory committee, which is composed of representatives of the Bond Market Association, said the secondary Treasury market could be adversely affected by the additional new 10-year note issuance policy, because it could indicate Treasury believes deficits will be a longer-run phenomenon. "Some members thought that a change in the 10-year re-opening policy at this point would lead some market participants to surmise that Treasury had pushed surplus projections further into the future," the group said in a letter to the Treasury. "No, that is not an indication of that," the Treasury official said. Because of Treasury's increased 2-year note issuance, the Treasury could be hit with a sharp acceleration in borrowing costs if shorter-term interest rates rise from their current low levels, perhaps in response to signs of a strong economic recovery, the committee noted. The Treasury official explained that increased 10-year issuance would help balance the government's debt across the maturity curve. Higher liquidity in the 10-year note from increased issuance could also help give Treasury more advantageous pricing, the advisory group added. The advisory group did not see any need for Treasury to resume intermediate maturity issues or introduce new instruments, after it eliminated the 3-year note and other securities during the surplus years of 1998-2001. Separately, the borrowing advisory committee said it agreed with Treasury's decision to move announcements of auction sizes forward to 11.00 am, from the current practice of 2.30 pm. This should help bring more overlap with European credit markets, the Treasury official said. The advisory group said moving auction times forward would also provide "greater convenience for European investors," but generally opposed moving auctions themselves forward from the current practice of 1.00 pm. This is because an earlier auction time leave less time for dealer underwriting, the panel said. Turning to the current state of financial markets, the advisory group said that conditions have "worsened noticeably" in recent months, with wider spreads and reduced supply, and that "a higher level of volatility is probably a permanent feature of the credit markets."
