Death of 30-Year Bond Good For Consumers
N E W Y O R K, Nov. 7 -- Let's face it: stocks are a lot sexier than bonds.
Everyone pays attention when the Dow Jones Industrial Average or the Nasdaq Composite Index delves upward, downward or sideways.
Yet a tick up or down of the 30-year Treasury bond usually doesn't do more than prompt a bunch of confused looks and yawns among average investors. For most Americans, the bond market just conjurs up images of images of slicked-up traders with red suspenders and cigars shouting gibberish involving fractions and other weird math.
But in recent days the bond market is turning heads — and for good reason. The Treasury Department's elimination last week of the 30-year bond and the subsequent reaction in the bond market effectively gave U.S. consumers, homeowner and companies one of the biggest break in interest rates ever seen.
Financing the Government's Shortfall
But first, it helps to understand why the U.S. government issues bonds in the first place.
Since the Second World War, the government has sold various denominations and durations of bonds to help finance the shortfall between what it spent and what it brought in from taxes and other revenue. The government would sell the bonds to primary dealers, who would then trade them back and forth in similar fashion to stocks.
The 30-year bond was born as the U.S. government entered a period of massive deficits under former Presidents Jimmy Carter and Ronald Reagan. Sales of the bonds helped finance an explosion of government spending, tax cuts and entitlement programs.
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