Good morning. I am pleased to be with you today to discuss the governments refunding needs for the current quarter. As we announced last Wednesday, Fiscal Year 1999 resulted in the largest budget surplus in our nations history. The FY 1999 surplus of $123 billion caps seven consecutive years of improvement in our budget results since the deficit peaked at $290 billion in FY 1992. In addition to two record-breaking budget surpluses in a row, we also have again achieved the largest ever pay-down of publicly held debt. In FY 1999, we reduced debt held by the public by $88 billion, following on a paydown of $51 billion in FY 1998. The result has been that our publicly held debt is taking up an ever smaller share of our nations debt markets. Moreover, interest payments on our publicly held debt, which had been projected in 1993 to grow to $321 billion for FY 1999, have been held to $235 billion for the year. The Clinton Administrations policy of fiscal discipline has been critical to achieving this success.
In August, we announced proposed rules that would allow us to buy back Treasury securities prior to maturity. We received constructive input on the proposed rule during the comment period, which is now closed. This week, we had the opportunity to discuss the proposal and comments with Treasurys Borrowing Advisory Committee. The Committee has provided valuable comments as to how Treasury could best conduct any buy-back operations. We plan to move forward on the rule and expect to have a final rule in place by January. While Treasury has not yet determined whether it will, in fact, conduct debt buy-backs, adoption of a final rule will make buy-backs an actual debt management tool for Treasury.
Today, I would like to announce another important initiative that will improve our debt management capabilities. Today the Treasury is issuing a temporary rule that will allow Treasury to reopen its benchmark securities within one year of issuance without creating concerns under the original issue discount (OID) rules. This rule will permit Treasury to reopen its benchmark
securities on a more regular basis. The increased flexibility to conduct such reopenings will promote greater liquidity and efficiency in the markets for Treasury securities.
Until now, Treasury has been constrained in its ability to reopen its benchmark securities issuances by the OID rules. Under the existing rules, Treasury generally can reopen an issue only if the price of the issue has not fallen by more than a de minimus amount. This de minimus standard was of particular concern for issues with shorter maturities. In addition, the existing rule constrained Treasury in that the de minimus price change is measured as of the date of the auction, rather than as of the announcement date. The rule change we are announcing today will eliminate the uncertainty under the OID rule arising from potential price movements between announcement and auction dates.
This rule change will provide us with greater flexibility in reopening issues of Treasury securities. In particular, this will allow us to promote liquidity in our benchmark securities issues. Together with the ability to conduct debt buy-backs, this will give the Treasury two additional tools to manage the nations debt in an era of budget surpluses.
The temporary rule will be published Friday in the Federal Register and will be effective immediately. At the same time, Treasury is publishing a request for comment on a similar rule for issuers other than the Treasury.
Terms of the November Refunding
I will now turn to the terms of the quarterly refunding. We are offering $25 billion of notes to refund $29.3 billion of privately held notes maturing on November 15, paying down approximately $4.3 billion.
The securities are:
1) A 5-year note in the amount of $15 billion, maturing on November 15, 2004; and
2) A reopening of the 6% note of August 15, 2009, in the amount of $10 billion.
These notes are scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, November 9 and Wednesday, November 10, respectively.
As announced on Monday, November 1, we estimate that net market borrowing for the October-December quarter will be $51 billion. This estimate assumes a $70 billion cash balance on December 31. The Treasury also announced that net market borrowing for the January-March quarter will be a paydown of approximately $12 billion with a cash balance of $20 billion on March 31.
As we announced in August, we are planning for a larger than usual year end cash balance as part of our planning related to the Year 2000. We have reduced our targeted balances from the $80 billion announced last quarter to $70 billion as a result of the additional information now available as to the timing of our year end receipts and outlays. As we announced in August, we continue to stand ready to meet our obligations under the borrowing facility established for the National Credit Union Administration. We do not anticipate any problems, but we continue to be prepared to deal with any needs that may arise. All major Treasury financial systems, including those used to collect taxes, disburse payments, and auction marketable securities are Y2K ready. The Federal Reserve has also indicated that its systems supporting Treasury programs are Y2K ready.
The additional funding in the fourth quarter will be done primarily through cash management bills. We expect to issue two cash management bills this quarter, one in mid-November and another in early December. Both will mature in mid-January.
The next quarterly refunding press conference will be held on February 2, 2000.