Dear Mr. Secretary:
The Committee convened in closed session at the Hay-Adams Hotel at 11:42 p.m. All members were present. Deputy Assistant Secretary for Federal Finance Timothy Bitsberger welcomed the Committee, apologized that Assistant Secretary Brian Roseboro and Under Secretary Peter Fisher would be late, and turned the meeting over to the Chairman who introduced a new member, Mr. Suresh Sundaresan, to the Committee.
The meeting began with a slide show presentation (attached) by Mr. Bitsberger. The charts illustrated the certainty around Treasurys financing requirements, the ability of Treasurys offering schedule to adjust to unexpected borrowing needs, and the effect of Treasurys new issuance pattern on various average maturity measures and bill issuance.
Mr. Bitsberger used the charts to show the effect of the issuance pattern announced in February on the Treasurys maturity distribution and on various measures of average maturity. As expected, the average maturity of total outstanding marketable debt is projected over the next five years to continue to decline back to the levels of the late 1970s. The Treasury also expects the various measures of issuance maturity to stabilize in the coming years after having declined sharply in the past two years. Committee members recommended that in the future the Treasury examine the projections of these maturities measures under various issuance patterns, so they can be used more effectively as a decision making tool.
Charts were also used to show the additional financing needed under different deficit scenarios over the next few years. Given the deficit forecasts from the 2004 Budget, the Treasury is well position to meet the governments borrowing needs with the current offering schedule. Mr. Bitsberger also pointed out that if deficits come in below expectations, the Treasury would be able adjust auction sizes down without much difficulty. The greater concern is if deficits end up being larger than expected, which would lead to a significant financing gap over the next five years. Along those lines, additional charts showed the hypothetical case of going to monthly 5-year notes and instituting a policy of reopening 10-year notes and the effect of doing so on bill issuance as a percentage of outstanding marketable debt.
Mr. Bitsberger then turned the meeting over to the Chairman to address the first question of the charge (attached). The Committee discussed the effect on the bill market of going to monthly 5-year notes and reopening 10-year notes if larger deficits do not materialize. In particular the experience of the late 1990s was raised when bills were cut back due to the unexpected surpluses, resulting in a premium in the bill market and some dislocation. In general members, while agreeing that a premium would likely return to the bill market, did not believe the effect on the bill market was a need for concern. The Committee agreed that the real worry was that deficits over the next few years would be larger than the Administration forecasted back in January. In general, they felt there was a need to shift to monthly 5-year notes and a reopening policy for 10-year notes in the near future given the likelihood of larger than projected deficits.
To provide the market with sufficient lead time and to expand the flexibility of Treasurys debt management going forward, the Committee advised Treasury to announce that it will be going to monthly 5-year notes in August and instituting a reopening policy for 10-year notes starting next quarter. The Committee recommended a mid-month settlement date for the monthly 5-year notes.
The Committee next turned to the second question on the charge dealing with Treasurys inflation-indexed securities (TIIS). Before the Committee discussed the issue, Mr. Bitsberger presented three charts showing trends in TIIS market activity. The charts documented the growth in daily volume and turnover ratios and the decline of dealer positions as a percentage of outstanding TIIS. One committee member pointed out that the decline in dealer positions as a percentage of outstanding TIIS was not surprising since the outstanding level has been rising. Committee members also suggested the Treasury look at TIIS auction statistics and private sector data, such as the growth in mutual fund TIIS holdings.
The Committee was supportive of the Treasurys desire to expand the TIIS auction calendar to four a year. There was some discussion of whether to have one new issue a year with three reopenings or two new issues a year with two reopenings. The Committee eventually recommended two new issues a year auctioned in January and July and reopened in April and October, respectively, to increase liquidity and attract secondary market investors.
The Committee recommended that auction sizes for the 3-year, 5-year and 10-year notes be $20 billion, $20 billion, and $18 billion, respectively. The Committee also recommended a reopening size of $14 billion for the 5-year in June and a decrease in the size of the 2-year note to $25 billion next quarter.
The meeting adjourned at 1:05 p.m.
The Committee reconvened at the Hay-Adams Hotel at 5:40 p.m. All members were present. The Chairman presented the Committee report to the Assistant Secretary for Financial Markets, Brian Roseboro and Deputy Assistant Secretary for Federal Finance, Tim Bitsberger. A brief discussion followed the Chairman's presentation, but did not raise significant questions regarding the report's content.
The meeting adjourned at 5:50 p.m.
Office of Market Finance
April 29, 2003
Timothy W. Jay, Chairman
Treasury Borrowing Advisory Committee
of The Bond Market Association
April 29, 2003
April 29, 2003
Treasury Borrowing Advisory Committee Quarterly Meeting
We will show you a set of charts that relates our current financing pattern to projected borrowing needs. We would like the Committees advice on:
Whether Treasury should issue 5-year notes monthly or reopen 10-year notes and, if so, when.
The value of these charts in providing advice on financing.
Any extensions or modifications to the charts that would helpful in future Committee meetings.
We will also show you a set of charts that shows trends in the market activity of inflation-indexed securities. We interpret these charts, and anecdotal evidence we have heard, as evidence of increasing demand for inflation-indexed securities. We plan on responding to increased demand by issuing new inflation-indexed securities twice a year (in January and July) and reopening them each once (in April and October). We would like the Committees advice on:
What other factors we should use as gauges of demand for inflation-indexed securities.
Financing this Quarter
We would like the Committees advice on the following:
The composition of Treasury notes to refund $2.3 billion of privately held bonds maturing on May 15.
The composition of Treasury marketable financing for the remainder of the April June quarter, including cash management bills if necessary.
The composition of Treasury marketable financing for the July September quarter.