US loan costs plan may mean further bond losses

US TREASURY secretary Timothy Geithner’s plans to lock in near record-low borrowing costs in 2010 may mean a second year of losses on longer-term bonds.

After selling $1.9 trillion (€1.26 trillion) of short-term securities to finance President Barack Obama’s efforts to end the worst recession since the 1930s, the Treasury plans to lengthen the average due date of its outstanding debt to 72 months from a 26-year low of 49 months. That may mean boosting sales of 10- and 30-year bonds by 40 per cent over the next year to $600 billion.

Replacing bills with bonds may drive up the so-called yield curve as the Federal Reserve keeps its target rate for overnight loans between banks unchanged near 0 per cent until the second half of 2010, according to the weighted average of 67 forecasts in a Bloomberg survey.