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30-year bonds back on the block?

The government hasn't sold them since the last budget surplus. But with the return of record deficits, the Treasury Department reconsiders.

WASHINGTON - The Bush administration said Wednesday it is considering bringing back the 30-year bond to provide financing for the government in an era of record budget deficits.

The government stopped selling the bond in October 2001, the fourth and last year the government ran a budget surplus. The sales stopped at a time when the government was projecting surpluses over the next decade of $5.6-trillion.

However, those surpluses never materialized as a recession, a war on terror and President Bush's string of tax cuts turned the black ink into oceans of red. The administration is projecting a record deficit this year of $427-billion.

Timothy Bitsberger, assistant Treasury secretary for financial markets, said a decision on whether to bring back the bond would be announced on Aug. 3, the date the government will announce its borrowing plans for that quarter.

Bitsberger said if the government decides to sell the 30-year bond again, it would do so in auctions twice a year beginning in February 2006.

The announcement sent prices of existing 30-year Treasury bonds skidding more than 2 points, or $20 for every $1,000 in face value, and pushed their yields up to 4.61 percent from 4.48 percent late Tuesday.

The government stopped selling the 30-year bond because officials believed it cost the government money to finance borrowing with such a long issuance period. The longest security the Treasury sells is a 20-year inflation-indexed bond.

Bitsberger, who had just joined Treasury when the administration decided to stop selling 30-year bonds, said the government was facing a different era now than in 2001.

"It is a different world than in 2001," Bitsberger said. "We have more debt outstanding than we did in 2001."

Bitsberger said the discussion of bringing back the 30-year bond was not related in any way to Bush's Social Security overhaul proposal that would allow younger workers to set up private investment accounts. By diverting money into the private funds, it would require the government to borrow an extra $100-billion or more annually to meet payments to current retirees during a transition period.

In 2001, the government recorded a surplus of $127-billion, its fourth year in the black, a feat that had last been accomplished seven decades before with a string of 11 surpluses that ended in 1930.

Last year, the federal government had a deficit of $412-billion, the third straight deficit under Bush and the second straight record in dollar terms. The administration projects this year's deficit will be $427-billion, although private forecasters pointing to a huge jump in tax collections this year believe the shortfall will not be that high.

Bush campaigned in 2000 on a proposal to provide across-the-board tax cuts and gained help in selling the idea to Congress from Federal Reserve Chairman Alan Greenspan, who said in early 2001 that the projected 10-year surplus at the time of $5.6-trillion was so large that it could be safely reduced by trimming taxes.

But the surpluses quickly turned to deficits after the bursting of the stock market bubble and the 2001 recession cut into government revenues. Spending increased with the need to fight a global war on terrorism and receipts were also shrunk by a string of tax cuts, starting with a $1.3-trillion, 10-year package that Bush got Congress to approve in the summer of 2001.

The national debt now stands at a record $7.75-trillion. It is the publicly held part of that debt the government must finance.

[Last modified May 5, 2005, 01:26:13]