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Budget analysts inside and outside the government said the positive turn is likely to be short-lived. Indeed, after a four-year absence, the Treasury Department announced yesterday it is considering reissuing its 30-year Treasury bond to help finance long-term government debt, jolting the bond markets and pushing down the price of existing 30-year securities.
Treasury officials have long resisted reissuing 30-year bonds, in part, because "nobody wanted to admit the deficits were permanent," said Wyss, the Standard & Poor's economist.
Treasury officials disputed that notion during a meeting with reporters yesterday.
"The deficit has nothing to do with it," said Timothy S. Bitsberger, assistant Treasury secretary for financial markets. "In fact, we think the deficits are coming down."
Wall Street wasn't buying it. "If you weren't borrowing this much, you wouldn't be doing it," Wyss said. "No question."
With a 2001 forecast of surpluses totaling $5.6 trillion over 10 years, Treasury officials figured they could focus on reducing debt, not adding to it. And eliminating the 30-year bond would push buyers to the 10-year Treasury bond. Since 30-year mortgages are closely tied to the 10-year bond, the added demand for that bond would drive down mortgage rates and help the economy.
But forecasted surpluses turned into huge, forecasted deficits. Since President Bush entered office, the total federal debt -- including debt to the public and debt owed the Social Security system -- has risen from $5.7 trillion to $7.8 trillion. Long-term interest rates should begin rising in the near term, so the government should lock in interest rates on 30-year bonds soon, Wyss said, before the cost of federal borrowing begins to rise.