The federal government revived the sale of 30-year Treasury bonds last week not because it needed them to cover deficits but in part to help out the country’s pension plans, Randal Quarles, the Treasury Department’s point person on domestic finance, said Thursday.
The federal government could have continued to finance deficits with shorter- term bonds, Quarles said before giving a speech to the Denver Metro Chamber of Commerce. But the long bond, as the 30-year Treasury is known, can help pension plans match their assets with liabilities that are 30 to 40 years in the future.
Investors snapped up $14 billion of the bonds at 4.53 percent on their first day, accepting almost a full percentage point less than that received at the bonds’ last auction in 2001.
Long-term bond rates haven’t risen as sharply as those for short-term bonds, making them a better deal for taxpayers.
The long bond also helps diversify the base of investors holding Treasurys, which some critics charge has become too concentrated in the hands of foreign governments.
Under one scenario, interest rates in this country could spike if foreign buyers stop buying new Treasury issues or if they sell their holdings.
Foreign demand for U.S. debt has tapered in recent months, but other investors have stepped in to fill the gap without a significant move in interest rates, Quarles said.
“We are not dependent on that foreign demand,” he said.
Economic growth is translating into stronger federal tax revenues and a smaller deficit, he added. Federal revenues took a noticeable jump in June and have continued running strong.
A priority for the government is making temporary federal tax cuts permanent, as well as increased financing for the war on terrorism and homeland security, and reducing deficits, Quarles said.
The federal deficit is expected to come in at $423 billion in fiscal 2006, representing 3.2 percent of the country’s $13 trillion economic output.
By 2009, the administration expects annual budget deficits will be cut in half and represent only 1.4 percent of the nation’s gross domestic product.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
