Dian's Column
Dian's Archive



No more 30-year Treasury Bonds, so...

For decades, the 30-year Treasury Bond has been the benchmark for the entire bond market and as such has provided investors with an easily accessible tool from which to gage their investment returns. But now that the 30-year Treasury bond is no longer being sold, what's that mean to bond fund investors? The answer all depends on who you ask.

When you think about what the impact of the Treasury Department's decision to no longer sell 30-year bonds is, you've got to look at things from a couple of vantage points: the government's and the investors'. From the government's point of view, one of the things that move was designed to do was to drive long-term interest rates down. For investors, a drop in long-term rates is great for things like mortgages. But a drop in interest rates also means a drop in yield. So, if you're someone who is living off of fixed-income investments, any drop in interest rates can trickle down to a drop in income.

While Wall Street professionals aren't sure whether the Treasury Department's decision to no longer sell the 30-year bellwether bond is carved in granite, or, whether they'll be issued again some time in the future, here's what some money managers say the move means:

  • "Short-term, it has a positive effect on bond funds because you get a rally in the middle of the curve, " says Richard Imperiale, portfolio manager of the Forward Uniplan Real Estate Investment Fund. "So, the 10-year bond goes from 4.8 percent to 4 percent and that's good for bond funds."

    On the other hand, Imperiale said that no longer selling 30-year Treasury bonds has hurt the opportunity to get a higher yield in the government bond market. Which, in turn, has hurt the opportunity for savers to get higher yields.

    But Imperiale thinks "consumption" rather than "saving" was what the government had in mind with their move. "By making money attractively priced for the consumer, people can afford to go out and take on more debt. And that consumption should help the economy recover, theoretically."

  • Didi Weinblatt, portfolio manager of the USAA Income Fund, says one of the things the move means is a new benchmark for bonds.

    "People had already started to move to the 10-year benchmark, " says Weinblatt." And when you look at the rest of the world, we're about the only country that doesn't use a 10-year bond for a benchmark.

    But not selling 30-year T-bonds doesn't mean there won't be any more long bonds. "The fact is that there is about $450 billion bonds over 10 year's (in maturity). Plus, there is agency debt out there and loads of other long bonds. So the long-bond isn't going away overnight."

  • In the hedge fund world, the folks at LJH Global Investments think the Treasury Department's move will be a more of a non-event than anything else.

    "The major impact was the shock of the announcement," says Mike Holt, vice president of research at LJH Global Investments. " The Treasury Department has historically been very transparent with its actions, so this change in policy certainly took the market by surprise."

    Holt says that in the future the discontinuation of the 30-year Treasury issuance could create opportunities for hedge fund managers. And, depending upon how it effects market volatility, impact hedge fund strategies.

    "Bottom line," says Holt. "It represents yet another piece of data that the markets must juggle, along with many other global, economic and political data points it is currently trying to evaluate."


    Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

    To read more articles, please visit the column archive.

  • [ top ]