Why Bring Back the 30-Year Bond?
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Why is the U.S. Government bringing back the 30-Year Bond? The move to auction 30-year Treasury bonds, reverses a decision taken in October 2001, when the budget last recorded a surplus. Since the Bush administration has stoked the national debt up to $7.8bn. Consequently the budget deficit has gone sky-high as well. The forecast for this year is $333bn. This admittedly is down from $412bn last year. The U.S. Treasury hopes that the bond market will see the 30-year bond as a safe, longer-term option for investment. On the government side, it is seen as good tool to finance the government's borrowing needs at lower cost over time. Indeed some European governments have even started selling 50-year bonds. (Though the results at auction have been woeful.) Pension funds, insurance companies and other investors are likely to hold the bonds as they are good way to hedge risk. Additionally many funds are trying to match assets to liablities. So with an upcoming wave of retiring baby boomers they need to have long-term safe investments. The government will use the proceeds to fund day to day activities including servicing interest payments on old debt.
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