Thirty years is a long time, but is it too long for comfort these days? The folks at Treasury think not, or at least that’s the implied message that will come packaged in the revived 30-year bond, which debuts anew on Thursday.
In August 2001, when we last glimpsed the government issuing new debt with a life span of three decades, the world looked a bit different. For starters, the tragedy of 9.11 was still a concept in a few twisted minds, and so a bit of innocence (or gullibility?) still defined the investment psyche on conjuring the risk factors that could arise on a moment’s notice. Meanwhile, inflation in August 2001 was running at a relatively mild 2.7% annual rate, based on the government’s consumer price index.
In February 2006, fewer investors harbor illusions about the risks that potentially lurk in the foreseeable future. Those risks can cut either for or against the fortunes of bond values, which is to say that winds of inflation or perhaps disinflation could blow harder at a moemnt’s notice. The former, however, seems to have the upper hand at the moment.
Indeed, inflation (the only potential threat to an otherwise “safe” government bond) is a bit higher now than when the 30-year bond last made an appearance. Consumer prices are rising by 3.4%, according to the annualized rate posted in December. Inflation’s pace, in other words, is roughly one-quarter more than it was when the Treasury last sold its paper embedded with 30-year maturities.

Inflation may be inching higher, but current yields on Treasuries, by contrast, have gone the other way. The long-term composite yield of Treasury maturities of 10-years-plus was 4.68% on Friday, the government reports. That’s down from 5.44% at the close of the month that last witnessed the sale of new 30-year Treasuries.
The trend may be puzzling, but a trend it surely is, namely, rising inflation and falling current yields. Par for the course these days. It’s unclear if any of this casts doubts across the bow of the new 30-year sale scheduled for Thursday, but if trading in the 10 year is any indication investors will snap up the longer maturities with nary a complaint. Indeed, Bloomberg News today reports that in pre-auction trading the new 30-year yielded a mere 4.49% on February 3, well below the 5.52% that prevailed at the August 9, 2001 sale of the bonds. For perspective, the 10-year Treasury traded at a 4.53% yield at Friday’s close.
Yield-curve inversion, it seems, looks likely to remain alive and kicking.