FROM THE OFFICE OF PUBLIC AFFAIRSLS-995
Good morning. I am pleased to be with you today to discuss the government's refunding needs for the current quarter.
Last week, the President announced a budget surplus for fiscal year 2000 of $237 billion, the largest in American history. As a result of three years of budget surpluses, we have paid down $363 billion of publicly held debt.
Earlier this week, Treasury announced that we expect to pay down an additional $23 billion in marketable debt during the current quarter. This is the first paydown in publicly held debt during the fourth calendar quarter in the forty years for which Treasury has records on quarterly results. This paydown will bring us to a reduction in publicly held debt of almost $390 billion in just over three years.
In this new environment, Treasury's buyback program has become an important debt management tool. We have now conducted a total of 16 debt buyback operations, redeeming outstanding securities with a total par value of just over $25 billion and an average remaining life of 18.6 years. As previously announced, we anticipate completing $30 billion in purchases this calendar year.
We continue to be pleased with the results to date. Buybacks have been beneficial in a number a number of ways:
- First, debt buybacks have helped us manage the maturity structure of Treasury's outstanding debt, bringing more balance to our debt paydown. This year we paid down approximately 8 percent of privately held marketable debt. This calendar year, net of issuance, we will paydown approximately 3 percent of our debt with remaining maturities of over 10 years. Absent buybacks, all of the paydown would have been in maturing shorter-term debt. Indeed, to date the average life of outstanding Treasury debt would have lengthened by an additional 2 months without the buyback program.
- Second, buybacks have enabled us to add to the liquidity of our benchmark issues. In fact, buybacks have enabled us to issue securities that we may not have otherwise been able to continue issuing.
This past quarter, we were pleased to extend the buyback program to include callable securities for the first time. We conducted two buybacks of callable bonds. These operations were very successful and we plan to conduct periodic operations in this sector.
In May, we instituted a regular schedule for buybacks, with announcements made on the third and fourth Wednesdays of each month for operations conducted the next day. We are satisfied with the results of using a regular schedule for operations and plan to maintain this schedule going forward.
Due to the timing of holidays in November and December, however, we will be announcing our buyback operations one week earlier in each of these months. Specifically, we will make announcements on November 8 and 15, and on December 6 and 13, for operations the next day. We expect to buy back just under $5 billion in these operations. In January our operations will return to the regular schedule.
In addition, we have accepted the recommendation of the Borrowing Advisory Committee to begin providing information on the estimated size of our buyback operations for the next calendar quarter. For the January to March quarter, we currently expect to buy back approximately $9 billion in Treasury debt.
Earlier this year, we announced that we were considering eliminating the issuance of 52-week bills as our borrowing needs decline. The Borrowing Advisory Committee has recommended that Treasury take that step, using its existing authority, early next year. We have worked with Congress to revise a number of statutes that reference the auction yield of the 52-week bill, proposing a reference to the one year Constant Maturity Treasury yield.
I am pleased to report that we have made significant progress. We have received bipartisan support and agreement on the language to be used for these technical and non-controversial revisions. Language to revise the relevant statutes is now before Congress. We are optimistic that some, if not all, of the revisions will be completed before Congress adjourns this session. We will continue to work with Congress to minimize any possible disruption from the potential elimination of the 52-week bill.
STRIPS Rules Changes
Today, we are announcing two technical changes to Treasury's STRIPS program to help improve the liquidity of this market:
- First, we are expanding the STRIPS program to include all outstanding 5-year notes that had not previously been eligible for stripping. That is, 5-year notes issued between November 30, 1995, and September 2, 1997, will now be eligible for the program.
- Second, we are implementing a change referred to as STRIPS to the penny. We are reducing the minimum and multiple limits for stripping all fixed-principal Treasury securities to $1000 par amount. This will eliminate the high dollar par amounts that have previously been required to strip certain securities.
Both of these changes should increase the amount of outstanding interest STRIPS available, making reconstitution of stripped securities easier and improving market liquidity.
The notice concerning these two rule changes is available today at the Federal Register and press releases will be available at the end of the press conference today. The expansion of eligible coupon securities will be effective on Friday, November 3. STRIPS to the penny will become effective on March 1, 2001.
35 Percent Rule
Treasury has had a long standing rule that limits the sum of a bidder's net long position plus its competitive awards to 35 percent of the auction. In the case of a reopening, holdings of the outstanding security are also counted in the calculation of a bidder's net long position. Recognizing that we have moved to a policy of regular reopenings, the issue has been raised that the 35 percent rule may adversely affect the ability of certain market participants to bid in certain Treasury reopening auctions. The Borrowing Advisory Committee has recommended that we revise the manner in which we apply the 35 percent limit reopenings. We are studying this issue and are seriously considering taking the Committee's recommendation to revise this rule.
Terms of the November Refunding
I will now turn to the terms of the November refunding. We are offering $20 billion of notes to refund approximately $23.9 billion of privately held notes maturing on November 15, paying down approximately $3.9 billion. The securities are:
1 A 5-year note in an amount of $12 billion, maturing November 15, 2005. If the auction of the 5-year note results in a yield in a range of 5.875 percent through and including 5.999 percent, the 5-year note will be considered a reopening of the 5-7/8 % 10-year note originally issued on Nov 15, 1995.
2 A reopening of the 5-3/4 % notes of August 2000, maturing August 15, 2010, in an amount of $8 billion.
These securities are scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern Standard Time on Tuesday, November 7, and Wednesday, November 8, respectively.
As announced on October 30, 2000, we estimate that we will have a $30 billion cash balance on December 31 and on March 31. We expect to issue two more cash management bills, one in mid-November and the second in early December, to mature in mid-December.
The next quarterly refunding press conference will be held on January 31, 2001.
Before I close, I would like to say something on a personal note. This will be the last quarterly refunding of the Clinton Administration.
This truly has been a remarkable period for Treasury debt management. We have gone from the challenge of funding a deficit of $290 billion to managing a surplus of $237 billion. That is over half a trillion dollars in improvement in annual budget results. The past seven years also marks the longest series of consecutive years of fiscal improvement in American history.
As a result of these improvements, our publicly held debt now stands at just 34 percent of Gross Domestic Product, down from nearly 50 percent at the start of the Administration.
We have made significant changes in debt management while consistently maintaining a focus on our three key goals: sound cash management and achieving the lowest cost funding for the taxpayer over time, while promoting efficient capital markets.
We eliminated the seven- and three-year notes. We reduced the frequencies and sizes of our remaining auctions. We initiated a regular schedule of re-openings of our longer-term debt. We extended uniform-price auctions to all of Treasury's marketable securities. We worked closely with the Federal Reserve on revisions they made to purchases of Treasury debt for the System's Open Market account. Most notably, we re-instituted debt buybacks, a practice first recommended by Alexander Hamilton, after a lapse of seventy years.
At the same time, we have sought to improve investor choices and promote savings by making Treasury securities more accessible. We introduced inflation-indexed instruments, both as marketable Treasury securities and as savings bonds. We lowered the minimum purchase requirement for all marketable Treasury securities to $1,000. We made the Treasury Direct program for individual savers fully electronic and accessible by telephone or the Internet. We revamped our State and Local Government securities program to reduce costs and provide greater flexibility. Finally, we made significant changes to the savings bond program to enhance returns to small savers and improve access, including making savings bonds available over the Internet.
We would not have been able to achieve these results without the commitment and professionalism of the staffs of Treasury's Offices of Cash and Debt Management and Market Finance. The staffs of the Bureau of the Public Debt, other Treasury offices, and of our fiscal agent, the Federal Reserve Bank of New York, also have been indispensable to our debt management efforts. I would like to thank all of them for their hard work and dedication throughout these eight years, and particularly during the three years I have spent here at Treasury. Finally, I would also like to thank Treasury's Borrowing Advisory Committee for their support and counsel over these years, particularly the outgoing Committee chairman, Ken deRegt, and the new Chairman, James Capra. We can all be very proud of our debt management accomplishments over the last eight years.