US – The US Treasury has decided to return to issuing 30-year bonds, in a move seen as responding to demands from pension funds as they seek longer-dated securities to help match liabilities.
“Treasury is re-introducing regular semi-annual auctions of the 30-year nominal security beginning with a bond that will mature on February 15 2036,” the department said in its quarterly refunding statement for August. The auctions were halted in October 2001.
The US is following European countries such as France and the UK which have issued longer-dated paper in response to pension fund demand.
"It is more than coincidence that the 30-year bond is being reissued as this pension accounting debate is ongoing,” said Henry Hunt, director of fixed income at F&C Asset Management.
“One reason this bond will be popular with investors, despite poor returns, is the current pressure from the White House budget proposal to begin mark-to-market accounting on defined benefit pension liabilities in the US as it is now done in Europe.”
Hunt added that mark-to-market accounting was encouraging European pension trustees to “pile into long-dated bonds to match assets to liabilities sometimes at the expense of investment performance”.
The US Treasury was confident of demand from long-term defined benefit plans and other long-term investment pools, Hunt suggested.
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