Treasury to Re-Offer Inflation-Set Notes

The U.S. Treasury Department’s first auction of inflation-linked securities was successful enough that it will issue two additional maturities, a Treasury Department officials said Friday.

“We will do a second maturity this year and a third by next year,” Deputy Assistant Treasury Secretary Roger Anderson said, speaking at a meeting of the Bond Market Trade Assn. “We’re going to do something shorter than 10 years and something longer than 10 years.”

The Treasury doesn’t know which will come first, because that will depend on market demand, Anderson said.

The Treasury launched inflation-linked securities on Jan. 29, with the sale of $7.003 billion of 10-year inflation-indexed notes. The securities protect investors by paying them more to reflect increases in the consumer price index.

In his remarks Friday, Anderson also reiterated that the April 8 auction of 10-year inflation-indexed notes will be a reopening of January’s auction.

The new notes will rise in value, with a three-month lag, tracking increases in the consumer price index calculated by the Labor Department. The inflation adjustments will be added to the principal of the notes and will be payable at maturity.

The Treasury so far has “been pleased with the liquidity” in its new securities, Anderson said. Liquidity is the degree to which the securities can easily be sold or converted into cash.

As long as inflation stays in check, the new notes should save the Treasury--and taxpayers--money.

That’s because interest payments will only be about half of those on the traditional 10-year note, which, for example, yielded 6.374% at the last auction Feb. 12. Also, inflation adjustments to the principal won’t be paid out until maturity.

The new notes are auctioned in a single-price format, just as two-year and five-year notes are now.