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The long goodbye

After September 11, many market watchers reckoned that higher US public expenditure meant that reports of the demise of the 30-year treasury were exaggerated. Then, at the end of October, came the news of a suspension of long-bond issues. Opinions are divided on the wisdom and likely results of the surprise move and on when the 30-year bond will wake up from its big sleep.

The US Treasury: has always faced pressures
to cut back on long-term securities

Washington was in no mood to party on October 31, when the US Treasury halted auctions of its bellwether 30-year bond. An outpouring of self-congratulatory rejoicing and mirth from the political pooh-bahs would ordinarily greet such an announcement. But the spectacle of an industry consultant, Pete Davis, leaking the news 30 minutes before the end of the press embargo made a hash of the event. And besides, America was preoccupied with the war against terrorism.

The decision sent a jolt through Wall Street. "We were absolutely surprised," says Christopher Fitzmaurice, a trader at Salomon Smith Barney and co-head of the firm's treasury desk. "The reaction - five points in one day - was an indication of that. It was the largest move in a number of years."

Speculation that the Treasury would abandon 30-year bond auctions had been exacerbating movements in the yield curve until August.

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