Treasury Considers 7-Year Note's Return

By MIN ZENG The seven-year note is about to make a comeback after a 16-year hiatus. Wednesday, the Treasury is expected to discuss the possibility of selling the seven-year note in its quarterly refunding announcement, as it seeks to finance borrowing requirements totaling nearly half a trillion dollars this quarter. Also on the agenda could be 20-year Treasurys, though it isn't the top candidate. Late Tuesday in New York, Treasurys were lower ahead of the announcement, with the 10-year note down 1 4/32 points, or $11.25 per $1,000 face value, at 107 23/32, to yield 2.842%, up from 2.718% late Monday, as yields move inversely to prices. The expanding list of Treasury maturities indicates the size of the U.S. government's borrowing needs as it faces a record budget deficit and has to fund an economic stimulus of more than $800 billion and further bank bailouts that could top $1 trillion. Louis Crandall, chief economist at Wrightson ICAP LLC, said there is a "high probability" the seven-year notes will be reintroduced at Wednesday's refunding announcement. The notes are likely to be sold on a quarterly basis, with an auction size of between $22 billion and $25 billion. Steve Rodosky, head of Treasury and derivatives trading at Pimco in Newport Beach, Calif., said besides raising the possibility of the seven-year note's return, the Treasury also is likely to increase the size of the three-year, 10-year and 30-year Treasurys on offer. But Mr. Rodosky doesn't expect the government to switch to monthly sales of the 30-year bond, from the current pace of quarterly sales. The likely reintroduction of the seven-year note is a signal the Treasury Department under Secretary Timothy Geithner is targeting the long end of the curve this year to fund its debt obligations as the lineup at the short end has been saturated. Longer-dated maturities are costlier for the government than shorter-dated ones as investors demand higher returns for the greater risk they incur. But bond yields are generally low, all maturities currently yield less than 4%, meaning the government can tap the funding market with ease and still pay lower interest rates than it would have a couple of years ago. —Meena Thiruvengadam contributed to this article. Landry's Notes Shopped With a 20% Yield According to investors, salesmen shopping Landry's Restaurants Inc.'s $270 million 14% notes due 2011 to investors have quoted the new issue as coming at 88 cents to 89 cents on the dollar for a 20% yield, an almost unheard-of rate for a new issue. "We've been doing this for 25 years and rarely do you see a 20% yield on new issues," said fund manager Brian Hessel of Stonegate Capital Management. —Andrew Edwards Companies Sell Bonds More than $15 billion of bonds were on offer in the investment-grade corporate-bond market Tuesday, as highly rated companies and foreign banks jostled to raise money to fund operations and repay acquisition-related debt. Consumer-goods manufacturer Procter & Gamble Co. sold $3 billion in new bonds in three parts, with yields on its fixed-rate portions between 3.578% and 4.722%. Altria Group Inc., the maker of Marlboro cigarettes, sold $4.23 billion of bonds, with the funds earmarked to help repay debt used to fund its acquisition of snuff producer UST, according to investors. Novartis AG was offering investors $5 billion of five- and 10-year bonds, while German state development agency KfW and Swedbank AB hit the market for $4.45 billion between them. Swedbank's bonds were guaranteed by the Swedish government. Highly rated companies sold $100.29 billion of U.S. dollar-denominated bonds in January, the strongest start of the year on record, according to data provider Dealogic. —Prabha Natarajan and Kate Haywood Write to Min Zeng at min.zeng@dowjones.com