If a sponsor tries to match liabilities by investing in 30-year Treasury bonds
and interest rates subsequently rise, for instance, the value of employees' accounts rises due to the higher crediting rate, but the value of the 30-year Treasurys held as investments fell.
1 percent for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds
Even though the current coupon on existing 30-year Treasury bonds
is low and spreads among Treasury bonds of shorter maturities are tight, he says the 30-year Treasury is still an important investment tool for insurers.
For most companies, the only important component is the simplest one: for plan years beginning in 2004 and 2005, the interest rate for calculating current liability, the starting point for determining Pension Benefit Guaranty Corporation (PBGC) variable-rate premiums and whether a plan requires deficit-reduction contributions, will be based on a composite index of the yields on long-term, high-quality corporate bonds, rather than on 30-year Treasury bonds
Until 2001, plans had to use the interest rate on 30-year Treasury bonds
to estimate expected portfolio income, but the Treasury stopped issuing these bonds that year.
However, the Department of the Treasury stopped issuing new 30-year Treasury bonds
Treasury announced that it would no longer issue 30-year Treasury bonds
, setting off a yield drop of more than 40 bp in the days that followed.
In 1991, for example, a peak amount of $47 billion of 30-year Treasury bonds
was auctioned by the U.
Long-Term's basic strategy was to bet on the eventual convergence between the prices of extremely similar assets (the archetypal case being 30-year Treasury bonds
issued today, "on the run," and the same bonds issued six months ago, "off the run").
Because the outstanding 30-year Treasury bonds
carry higher yields than the current market yield on comparable securities, the department paid sellers $318 million in premiums to cash in early.
The yields on the 30-year Treasury Bonds
began to turnaround in mid-February, right on the heels of the Federal Reserves last cut of a quarter percent in short term rates.
The three-month average yield on 30-year Treasury bonds
was used as the reference rate.