Bond Flop

For the first time in more than a year, the U.S. Treasury last week tried to sell long-term bonds. The sale was a dud. Treasury offered 25-year bonds with 4 1/4% interest, the legal maximum imposed by Congress, hoped to sell at least $500 million worth, offered up to $1.5 billion. Only $370 million worth was sold. Another offer of $2 billion in 25-month notes was oversubscribed, thus more than meeting the Treasury's cash needs of $2.5 billion. Said a top Treasury official: "The response to the long-term issue shows conclusively that we simply cannot sell in this market with this ceiling. It is important new evidence that we need to remove the ceiling if we are to manage the debt properly."

Democrats who oppose lifting the 4 1/4% ceiling thought otherwise. They argued that the Treasury should have tried harder to sell the bonds to state and private pension funds by giving them longer advance notice of the issue. Growled Illinois Senator Paul Douglas: "I do not charge the Treasury with deliberately planning to have the issue fail. But I do say that if it had planned for failure, it would not have acted much differently." Douglas said that by not selling the bonds, the Treasury "may gleefully think it has won a battle; but they are going to lose the war." He is probably right. Despite the bond flop, there seemed little chance that Congress this session will lift the 4 1/4% ceiling on bond issues of five years or longer.

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