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Fallout: The Financial Crisis

Treasury adds 7-year note to pay debt

Marketplace Staff Feb 4, 2009
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Fallout: The Financial Crisis

Treasury adds 7-year note to pay debt

Marketplace Staff Feb 4, 2009
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TEXT OF STORY

KAI RYSSDAL: You’ve heard, perhaps, that we need to raise a whole pile of money to pay for all the government’s bailouts? Today the Treasury announced its plan to do that. It’s going to double sales of the 30-year bond. It’s bringing back the seven-year note. There’s even talk about creating four-, 20-, and 50-year bonds.

Marketplace’s Dan Grech reports.


DAN GRECH: The government already issues two-year, three-year, five-year, 10-year and 30-year bonds. So why would we need a seven-year bond?

Guy LeBas is chief fixed income strategist at Janney Montgomery Scott.

Guy LeBas: The seven-year bonds may be, for example, used to fund TARP investment in corporations, whereas the 20-year bonds might be used effectively to fund deficits that they expect to be able to repay more distantly in the future.

LeBas says differing maturities can bring in more investors.

LEBAS: So the Treasury will go out with, for example, $30 billion worth of two-year bonds. But if that number went up to $40 billion, well, maybe you couldn’t muster enough investors in a given day to be interested. But if you have a two-year and a three-year and a five-year and a seven-year, all on separate days, it’s a more efficient way to get the auctions completed.

LeBas says some investors need the quick payoff of a two-year note. Others are willing to take a 30-year gamble, but they demand higher returns. Investors will get their first crack at a seven-year note on Feb. 26.

I’m Dan Grech for Marketplace.

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