Press Releases


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Good morning. I am pleased to be with you today to discuss the governments refunding needs for the current quarter.

By the end of this fiscal year, we will have achieved three straight years of unified budget surpluses -- a feat unimaginable just a few years ago. The unified surpluses for the three years are estimated to total over $400 billion. These surpluses cap the longest series of improvements in budget results in the history of the United States.

As the President announced on Monday, this year we will pay down $221 billion of publicly held debt. This reduction in our publicly held debt consists of a reduction of $210 billion of privately held marketable debt and $11 billion of nonmarketable debt. In all, this will bring us to a total reduction in publicly held debt of approximately $360 billion in just three years.

Adjustments to Date

Paying down approximately $360 billion in debt in three years is a significant achievement. We have made adjustments to our debt management program to pay down this debt and to prepare for the years ahead in which we expect to continue running large, unified surpluses, leading to a paydown of over $200 billion in debt each year.

Since 1996, we have decreased bill issuance by 28 percent. This has been accomplished by reducing the size of weekly bill and moving to quarterly auctions of one-year bills. At the same time, we have decreased issuance of coupon securities by over 50 percent, based on our current auction schedule. We accomplished this by eliminating more than one-third of coupon auctions and by instituting a regular schedule of reopenings of five- and ten-year notes and thirty-year bonds.

As a result, the amount of Treasury coupon debt that matures each year has declined from its peak in 1998. Maturing coupon debt will be relatively stable this year and next. It is forecast, however, to decline by approximately $80 billion in 2002 to under $400 billion for the year. Maturing debt is forecast to decline even further in 2004 to approximately $260 billion, based on current issuance patterns.

While issuance of coupon debt has decreased significantly, the outstanding coupon debt has decreased much less dramatically, due to the length of time it takes for previously issued coupon debt to mature. To date, the outstanding stock of coupon debt has decreased by 14 percent from its peak. In contrast, however, outstanding debt with a remaining maturity of five years or more has actually increased by eleven percent.

Debt Buybacks

Paying down debt primarily by redeeming maturing debt is inherently asymmetrical, with the paydown occurring at the short end of the maturity spectrum. Buybacks have the potential to bring more balance to the paydown of the debt. For this and other reasons, earlier this year we reinstated buybacks for the first time in seventy years.

We are very pleased with the results of the buyback program to date. We have now conducted ten buyback operations. To date, we have redeemed securities with a total par value of $17.5 billion. This represents just over half of the up to $30 billion of buyback operations that we plan to conduct this calendar year. The operations have ranged in size from $1 to $3 billion. For the operations we have conducted thus far, we have purchased securities with remaining maturities of between 15 and 25 years.

In May, we instituted a regular schedule for buybacks. The buyback operations are conducted twice each month in the third and fourth weeks of the month, with a one day notice period. We plan to maintain this schedule going forward.

We have continued to analyze the buyback results and to discuss the program with Treasury's Borrowing Advisory Committee. The Committee has recommended that we conduct buybacks of callable securities. This quarter, we plan to purchase securities with maturities of approximately ten years or more. For the first time, this will include callable securities.

Federal Reserve Purchases of Treasuries

Since the last Quarterly Refunding, the Federal Reserve announced changes in the management of the System Open Market Account, or the SOMA. The Federal Reserve will now set limits by maturity as to the percentage of each security that they will hold. Accordingly, the Federal Reserve will no longer consistently roll over 100 percent of their maturing securities into new issues.

While many things may change over the next 24 months, based on the Federal Reserve's current holdings and Treasury's current auction sizes, the new procedure could lead to redemption of $30 billion of maturing coupon securities over this period. In addition, this year there have been net bill redemptions by the Federal Reserve, primarily due to the reduction in Treasury's 52-week bill issuance. These bill redemptions were just over $7 billion in the last quarter and are likely to be somewhat higher this quarter. The Federal Reserve would meet their additional portfolio needs with purchases in the secondary market, subject to the same limits by maturity as for purchases at auction.

We consulted closely with the Federal Reserve concerning these changes, which may provide Treasury greater flexibility in the future to maintain the size of coupon issuance. We are pleased that the changes in SOMA portfolio management will meet both the Federal Reserve's portfolio management needs and Treasury's broad debt management objectives.

Looking Ahead

At the present time, we do not believe further changes in the overall pattern of our coupon debt issuance are necessary. This is based on the significant adjustments we have made to date, the fact that maturing coupon debt is not declining next year, and the additional flexibility we have gained as a result of the changes made by the Federal Reserve in the management of the SOMA portfolio. As we have done historically, we will use bills as an adjustment mechanism, both for seasonal and other adjustments to our borrowing needs. For the balance of the year, we expect the size of the regular weekly bill auctions to increase to meet these needs.

We have previously mentioned that we are considering the elimination of the one-year bill. In this regard, we are pleased with the progress to date in our discussions with Congress concerning revision of the limited number of statutory provisions that reference the one-year bill for the purpose of setting interest rates.

I would like to emphasize that it has been the Treasury's policy to give the markets ample notice should we decide to eliminate or curtail a particular issue. We will continue to follow this practice.

Terms of the August Refunding

I will now turn to the terms of the August refunding. We are offering $25 billion of notes and bonds to refund approximately $25.1 billion of privately held notes maturing on August 15, paying down approximately $100 million.

The securities are:

1. A reopening of the 6-3/4% notes of May 2000, maturing May 15, 2005, in an amount of $10 billion.

2. A 10-year note in an amount of $10 billion, maturing August 15, 2010.

3. A reopening of the 6-1/4% bonds of February 2000, maturing May 15, 2030 in an amount of $5 billion.

These securities are scheduled be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, August 8, Wednesday, August 9, and Thursday, August 10, respectively.

As announced on Monday, July 31, 2000, we estimate that we will have a $50 billion cash balance on September 30 and a $30 billion cash balance on December 30. We expect to issue cash management bills in mid-August and around the end of the month to bridge seasonal lows in our cash position.

The next quarterly refunding press conference will be held on November 1, 2000.