In theory, it could be construed as such. In reality, it only raised demand temporarily. Plus, no one trading believed long term corporate debt would do well if long term government debt wasn't, though it was certainly marketed aggressively and increased in volume.
The fact remained that there was less demand for 30 year governments even before their issuance stopped, meaning less demand in general for long term paper, corporate or otherwise. So, though there was an increase in 30 year corporate issuance to try to fill the gap, in terms of liquidity and demand, it met a similar fate. And, that was before higher quality corporate issuers started getting downgraded or investigated throughout 2002. -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Michael Perelman Sent: Tuesday, October 07, 2003 1:24 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] 30 yr. bond auctions I had heard that it was also a subsidy, since it would raise the demand for long term corporate bonds by removing competing government bonds. Is that true? On Tue, Oct 07, 2003 at 01:13:40PM -0400, nomi prins wrote: > The political rationale was that due to the post-Clinton surplus, there > was less need to issue as much Treasury debt (corporate debt, however, > increased dramatically), so treasury auction sizes were reduced. Both > the 3 year note (several years earlier) and the 30 year bond auctions > ceased. > > In actuality, there had been a decline in demand for the 30 year for > some time amongst corporations, agencies and investors, all of whom > became more interested in churning debt than sitting on it long term, > particularly as falling interest rates throughout the 2001 period > increased the values of shorter term bonds more quickly. This decline in > demand proceeded cessation; 30 year issuance had already been cut in > half from $30 billion to $15 billion in 2000 and 2001. Plus, greater > demand for the 10 year note created wider spreads between 10 and 30 year > bonds, making it comparatively more expensive for the Treasury to borrow > 30 year paper. > -----Original Message----- > From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Michael > Perelman > Sent: Tuesday, October 07, 2003 12:35 PM > To: [EMAIL PROTECTED] > Subject: [PEN-L] 30 yr. bond auctions > > What was the rationale (and the real reason) for ceasing the 30 yr. bond > auctions? > -- > Michael Perelman > Economics Department > California State University > Chico, CA 95929 > > Tel. 530-898-5321 > E-Mail [EMAIL PROTECTED] -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
