Dollars and Jens
Thursday, June 13, 2013
the bond market drop and today's reopening
When the treasury auctions off a new bond, they take bids in terms of interest rates, and at the conclusion of the auction they set the coupon such that the bond is priced near, but not quite (typically) at, par (i.e. $100 in the convention of the announcement below). A month or two after an auction the treasury will frequently "reopen" an auction; rather than auction off an entirely new issue of bonds, they auction off more of the previous issue. Thus a thirty-year bond auction in May of 2013 issues bonds that mature in May 2043; in June of 2013, a reopening of the issue results in 29 year, 11 month bonds, perfectly fungible with the previously sold issue. Since the coupon at that point has already been set, the price of the bonds may exceed par, or may be further below par than occurs for an initial auction.
Because interest rates have risen substantially over the last month or two, and because a 30 year bond changes in price quite a bit when the interest rate changes, a reissue for an auction that took place today sold at less than 91% of par. I don't know whether there are records kept on that — it may be that a re-issue sold at a lower price as recently as 1994. If 91% isn't a record low, though, it's certainly notable.
Description: 29-Year 11-Month Bond Term: 29-Year 11-Month Series: Bonds of May 2043 Interest Rate: 2-7/8% High Yield: 3.355% Price: $90.978135 Allotted at High: 47.11% Accrued Interest*: $2.57813 Total Tendered: $32,091,472,600 Total Accepted: $13,000,004,600 Issue Date: 06/17/2013 Dated Date: 05/15/2013 Original Issue Date: 05/15/2013 Maturity Date: 05/15/2043 CUSIP: 912810RB6