U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

The quarterly refunding process is an important part of our efforts to fulfill our mission of financing government borrowing needs at the lowest cost over time. We believe that Treasury’s policy of issuing debt in a regular pattern and in predictable quantities fulfills this mission. The risks to regular and predictable issuance are the result of unexpected changes in our borrowing requirements, changes in the demand for our securities, and anything that inhibits timely sales of our securities. To reduce these risks, we closely monitor economic conditions, fiscal policy and market activity, and, when necessary, respond with changes in debt issuance that are based on thorough analysis and discussions with market participants. We also seek to lower our borrowing costs by ensuring timely, reliable sales of our securities through continuous improvement in the auction process.

The Department of the Treasury announced its quarterly refunding needs and related financing changes today. We are offering $40 billion of notes to refund approximately $18.8 billion of privately held notes maturing on August 15, raising approximately $21.2 billion. The securities are:

1. A new 5-year note in the amount of $22 billion, maturing August 15, 2007.
2. A new 10-year note in the amount of $18 billion, maturing August 15, 2012.

These securities will be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, August 6, and Wednesday, August 7, respectively. The balance of our financing requirements will be met through 10-year inflation-indexed note, 2-year note and bill offerings.

In the current quarter, Treasury may issue an off-cycle cash management bill due to seasonal cash swings in early September.

Treasury is discontinuing the re-opening policy for 10-year notes. Like the discontinuation of the re-opening policy for 5-year notes announced on May 1, this decision for 10-year notes is part of our longer term efforts to smooth the maturity distribution of our issuance. In addition to smoothing the distribution of maturities, discontinuing the 10-year re-opening policy allows for slightly larger auction sizes. Going forward, our policy will be to auction a new 10-year note each quarter.

Changes to Auction Announcement Times

As part of Treasury’s broader efforts to improve the auction process, all Treasury auction announcements, except quarterly refunding announcements, will be released at 11:00 a.m Eastern time. This policy will apply to all regular issues of Treasury bills, 2-year notes and inflation-indexed securities. It will take effect with regular weekly bill auction announcements scheduled for August 8.

Treasury is also shortening the when-issued period for 2-year notes. Beginning with the announcement of the August 2-year note, the auction announcement will be released two business days prior to the scheduled auction. For details on auction and announcement dates, see http://www.treas.gov/offices/domestic-finance/debt-management/auctions/

Buyback Operations

Treasury will not be conducting buybacks this quarter.

Net Long Position Reporting

Following public comment on application of Net Long Position (NLP) reporting in auctions, Treasury announced that the reporting threshold for NLP reporting will soon be raised to 35 percent of the security’s offering amount. This change, which will be issued as a final amendment to the Uniform Offering Circular (31 CFR Part 356, also referred to as the auction rules), will reduce the costs of complying with Treasury auction rules for some auction participants. No other changes to NLP reporting are under active consideration at this time. Treasury will continue to work to reduce the burden of complying with NLP reporting.

Once this change is implemented, Treasury will provide the specific dollar threshold on each offering announcement.

Large Position Reporting – Proposed Changes

Treasury also proposed changes to the large position rules (17 CFR Part 420) applying to those who hold very large positions. These holders are subject to infrequent, on-demand reporting requirements designed to provide regulators with information to assess whether a market participant is exercising market power. Specifically, we propose to:

• separate reporting of certain components of net trading position and gross financing position
• separate reporting by maturity classification of the par amount of securities delivered through repurchase agreements as a memorandum item
• reporting of the gross par amount of fails to deliver as a new memorandum item, and
• eliminating the optional exclusion in the calculation of the amount of securities received through certain financing transactions as part of gross financing position.

Details of these proposed modifications are described in today’s Federal Register. The comment period on this proposal ends September 16.

Policy Issues Under Discussion

We are studying the advantages and disadvantages of moving auction times earlier in the day. Previous announced policy issues that remain under discussion include Treasury's efforts to:

• promote investor interest in inflation-indexed securities.
• reduce the costs associated with short-term fluctuations in cash balances.
• study the effects of heightened volatility on debt issuance.

Please send comments and suggestions on these subjects or others relating to debt management to debt.management@treasury.gov.

Auction Performance Reporting

We are committed to improving the auction process by simplifying bidding procedures and speeding up auction results release times. As part of the chart package released Monday, July 29, 2002, we have included information on progress towards our goal of consistently shorter results release times.