Bloomberg the Company

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Follow Us

Industry Products

U.S. Zero-Coupon Debt Highest Since 1999 With Inflation Absent

Don't Miss Out —
Follow us on:

June 5 (Bloomberg) -- The outstanding amount of zero-coupon U.S. Treasury notes and bonds rose to the highest level since December 1999 amid demand from pension funds and insurance companies matching assets with liabilities.

Zero-coupon debt, or strips, short for separate trading of registered interest and principal securities, is created by Wall Street firms that split bonds into their face amount and individual coupon payments. The amount of strips rose by $1.36 billion, or 0.66 percent, to $209.26 billion in May, Treasury Department data released today show.

Thirty-year strips returned 22 percent this year, compared with a gain of 11.2 percent for the Treasury bond due in May 2044, according to Bank of America Merrill Lynch index data. The yield on strips maturing May 2044 was at 3.63 percent.

“‘Investors like pension funds and insurance companies are starved for long-duration fixed income assets,’’ said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 22 primary dealers that trade with the Federal Reserve. ‘‘What you’ve seen is a general demand for duration in the market.’’

The securities are considered the most vulnerable to inflation, which has persisted below the Fed’s 2 percent target rate.

The Fed’s preferred inflation gauge has undeperformed the target for a 24th straight month, even as it increased. The personal consumption expenditures deflator rose 1.6 percent in April from a year earlier, the biggest jump since November 2012, according to data released May 30.

Inflation remains low even as the economy is expected to expand. Gross domestic product is forecast to grow 3.5 percent in the second quarter, after contracting 1 percent in the first three months of the year, according to a Bloomberg survey of economists.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey