Why doesn't BIG AL use the "INVERSION OF THE T BONDS to reduce the deficit? If 30 year bonds cost 6.125 per cent and 2 year bonds cost 6.594 per cent (current rates) each $200B of short term bonds converted to long term bonds would be a savings of $ 1 Billion per year interest. Curlygreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
and I do not understand all of this but this seem obvious. Why is the Gobmint reducing the supply of long term bonds? I know the President is planning to eliminate the deficit but the long term bonds can be retired later as needed. The Treasury and the taxpayers should benefit from this spread instead of allowing the speculators and big banks to make this profit. Curly said that a one half percent difference on 5 trillion dollars is 25 billion dollars per year. Over a 10 year period, this would be $250 Billion plus the interest on the amount saved. This is not chump change. I can not believe that this is not being done. Then ALGORE could claim credit for saving $250 Billion until the debt is paid off and win the election. Republicians wake up and raise this question before ALGORE does. Does someone have a hidden agenda? The gobmint has had a policy for years to increase the percentage of short term debt when short term rates were lower. Has this changed? Do the people making these decision realize that the rates have flipped (inverted) Perhaps they are secretly issuing the long term debt with a plan to buy the short term debt as it matures, retire it, and apply the savings to reduce the national debt but I doubt it. I do not know if they are as smart as Curly to figure this out. Are we missing something? The wierd part is that the number of buyers for the 30 year bonds was at a 17 year low at the last auction. If we can't get this figured out, we may have to consult with Shemp and Larry to get the big picture.
-- Moe (Moe@3stooges.gom), February 25, 2000
""Why is the Gobmint reducing the supply of long term bonds? I know the President is planning to eliminate the deficit but the long term bonds can be retired later as needed. The Treasury and the taxpayers should benefit from this spread instead of allowing the speculators and big banks to make this profit.""" [Moe}
Moe -- You're missing the bigger picture here. This all has absolutely NOTHING (actually very little) to do with which bond/bill/note is best for effectively reducing the debt.
It has EVERYTHING to do with POLITICS. Look at the timing.
. *ON THE EVE OF THE NEW HAMPSHIRE PRIMARY*
1 -- AND with one day left in the month, we were heading for the worst January in the last 10 to 30 years (depending on the index you are talking about, NASDAQ, S&P, or DOW).
January is a highly watched indicator the "predicts" what is likely for the rest of the year. ("As goes January, so goes the year")
2 -- The Long bond rate was at 3 year highs (6.7%) and getting a lot of attention from the investors/traders/instituional money managers. The 30 year IS the most watched/influential of all the debt instruments in any case.
3 - On the last day of the January, the night before New Hampshire Primary vote, Summers *ANNOUNCED* that they were going to (did not *do* anything) go after the 30 bond exclusively, buying them back and reducing sales -- thereby -- creating:
A} a huge rally in the bond market taking the 30 year interest rate from 6.7% down to nearly 6% even.
B) a big rally in all the stock indexes that lead to all time highs in the DOW and the Nasdaq during the next 2 weeks. The entire financial world knows that the 30 year bond is absolutely critical to every major financial institution, including foreign governments, in the world. The prospect of an *abrupt* shortage of supply, could have caused absolute chaos. Summers knew that too. After he caused his bond/stock rally and got Gore off to a good start (he barely beat Bradley), they later announced that they changed their minds and were going "utilize all durations of debt instruments" and not just the 30 year bond. However, this was announced *after* they had stopped the slide, produced a rally to all time all time highs, and reduced a threat to Gore in New Hampshire. If Gore had lost in New Hampshire, he would have given Bradley the lime light like McCain got later and really hurt Gore's chances to get the nomination.
Also, IF the stock/bond slide continued -- from the worst January in so long -- Gore and the Democratic party might have had to run for president, (as well as house and Senate) while having to explain why it " 'twernt" so good anymore. Especially since Gore is running on the claim to co-masterminding "this great economy", that produced the greatest bull market, and great wealth. (actually the average net worth is less than 10 years ago, in simple, noninflaion adjusted dollars! -- where is the wealth effect?)
The timing was just too sweet -- and the retraction made too easly -- to have been real policy. Just real politics. JB
-- Jackson Brown (Jackson_Brown@deja.com), February 26, 2000.
I believe government bonds aren't callable. That means the government can't demand they be returned and redeemed. Only those bonds voluntarily traded on the open market can be repurchased, those closely held cannot be repurchased. Aside from a paucity of new supply, there's a shortage of long bonds because there are fewer and fewer long bonds being offered to the open market (and by extension, to the Treasury). Who wants to give up a near risk-free bond paying well north of 10% per year for at least the next decade or two in concert with realizing a (temporarily) diminished capital gain? I sure wouldn't. This is part and parcel of the dynamic that creates a Treasury yield inversion.
-- Nathan (firstname.lastname@example.org), February 26, 2000.
given the real inflation figures, not the one's touted by FedGov, & the fact the FED is still pumping billions, 30 year bonds just might end up being toilet paper.
-- mitchell barnes (email@example.com), February 26, 2000.