U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning. I am pleased to be with you today to discuss the governments refunding needs for the current quarter. Fiscal discipline and economic strength have continued to generate growing budget surpluses. These surpluses represent an increase in our national savings, contributing significantly to the health of the economy and helping to prolong the longest running economic expansion in our nations history.

On Monday, Treasury announced that we expect to pay down an estimated $185 billion of outstanding marketable debt during the April-June quarter. This represents the largest quarterly reduction in the government's marketable debt in our nation's history, far surpassing the previous record of $114 billion for the similar quarter last year. When the additional paydown of $47 billion estimated for the July-September quarter is considered, we expect to achieve a reduction in marketable Treasury debt of $205 billion for the fiscal year. In addition, we estimate a paydown this fiscal year of $11 billion of non-marketable debt.

Thus, by the end of this fiscal year, we estimate that debt held by the public will be reduced by a total of $216 billion. This will represent the third year in a row in which we have achieved a reduction in our public debt, for an overall reduction of $355 billion over these three years.

Since we were last together, we have conducted the first buybacks of Treasury securities in 70 years. These buybacks renew a practice that was proposed by Secretary of the Treasury Alexander Hamilton when he submitted a plan to Congress in 1795 to extinguish the debt within thirty years. Albert Gallatin, the fourth Secretary of the Treasury, later conducted the first debt

repurchases. Over the course of the next 120 years, Treasury entered the market from time to time to repurchase its debt during periods of sustained budget surpluses. The last debt repurchases were conducted by Secretary Andrew Mellon's Treasury in 1930. Secretary Summers and all of us at Treasury are proud that President Clinton's economic program of fiscal discipline and growth has once again brought about economic strength to the point where buy-backs are both feasible and desirable.

There have been many challenges in initiating such repurchases after 70 years. I would like to recognize the staff of Treasury, the Bureau of the Public Debt, and the Federal Reserve Bank of New York and to thank them for their high level of professionalism and for all their efforts. We have been very pleased with the success of the initial debt buybacks.

Treasury will continue to pay down the debt principally by paying off debt as it matures. Debt buybacks, however, will provide an important additional means of retiring the debt in an era of continued fiscal discipline. Consistent with our previous announcements, we plan to purchase up to $30 billion in debt this year.

To date, we have conducted four operations resulting in the retirement of securities with an aggregate par value of $7 billion. The initial debt buyback operations were conducted smoothly and had broad participation. The operations have ranged in size from $1 to $3 billion each. Over the course of the four operations, we were offered securities with a par value of $34 billion in response to our offer to purchase $7 billion par value of securities. The operations were conducted in a manner consistent with the Federal Reserve Bank of New York's open market purchases.

We have discussed the results of our initial buyback operations with our Borrowing Advisory Committee. We will continue to consult the Committee on how we can best use this debt management tool, including with respect to size, regularity, and maturity sector covered by

We will conduct buybacks twice a month from now until the next Quarterly Refunding announcement. We anticipate that one operation will take place each week in the third and fourth weeks of the month. Consistent with the Borrowing Advisory Committee's recommendation, we will be moving to a one-day notice period rather than the two-day notice period in our four preliminary operations. Our next announcement will be on Wednesday, May 17 ^th for an operation on Thursday, May 18th.

We expect these operations will be in size ranges approximating those we have conducted to date. We will give further consideration to the various suggestions made by the Borrowing Advisory Committee as to size, regularity, and maturity sector.

As we conduct further buybacks, we will continue to learn from these operations and adjust our procedures where appropriate to achieve the best results for the American taxpayers.

As our nation's fiscal health continues to improve and the amount of maturing Treasury debt declines, we will consider how best to reduce Treasury's borrowings. Consistent with long practice, we will review the size, frequency, and issuance of our securities for further adjustments.

As we have discussed at these meetings several times over the last year, we will closely review the frequency and size of the one-year bills and two-year notes.

In February, we announced reductions in the frequency of issuance of one-year bills from thirteen to four times a year. As our borrowing needs decline, it is likely that we will reduce or eliminate issuance of one-year bills. As we move forward in this regard, there are currently a limited number of statutory provisions that reference the 52-week bill for the purpose of setting interest rates. We look forward to working with Congress to achieve a smooth transition to the eventual elimination of the one-year bill.

In February, we also announced modest reductions in the size of two-year note auctions. Beginning this month, we will again modestly reduce the size of our two-year note issuances. To the extent that our borrowing needs continue to decline, it is likely that we will consider reducing the frequency of our two-year note auctions, consistent with the recommendations of the Borrowing Advisory Committee.

I will now turn to the terms of the May refunding. We are offering $20 billion of notes to refund approximately $27.8 billion of privately held notes maturing on May 15, paying down approximately $7.8 billion.

The securities are:

1. A 5-year note in the amount of $12 billion, maturing on May 15, 2005. If the auction of 5-year notes results in a yield in a range of 6.500% through and including 6.624%, the 5-year notes will be considered a reopening of the 6 1/2% 10-year notes originally issued on May 15, 1995.

2. A reopening of the 6 1/2% note of February 2000, maturing February 15, 2010, in the amount of $8 billion.

These securities are scheduled be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, May 9 and Wednesday, May 10, respectively.

In addition to the refunding, the 8 1/4% bonds of 2000-05 that were called for redemption on January 14, 2000, are also being redeemed. There are $4.2 billion of these bonds outstanding, of which $2.0 billion are held by private investors.

As announced on Monday, May 1, 2000, we estimate that we will have a $50 billion cash balance on June 30 and a $45 billion cash balance on September 30.

The next quarterly refunding press conference will be held on August 2, 2000.