FROM THE OFFICE OF PUBLIC AFFAIRSPO-953
The Department of the Treasury announced its quarterly refunding needs and related financing changes today. The recently announced budget projections indicate a need for relatively small increases in financing in the fiscal years 2002 and 2003. We anticipate financing these deficits with existing securities and within the existing auction schedules. The specific terms of the refunding follow.
We are offering $29 billion of notes to refund approximately $4.1 billion of privately held bonds maturing or called on February 15, raising approximately $24.9 billion. The securities are:
- A re-opening of the 5-year note, first issued in November 2001, in the amount of $16 billion, maturing November 15, 2006.
- A new 10-year note in the amount of $13 billion, maturing February 15, 2012.
These securities will be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, February 5, and Wednesday, February 6, respectively. The balance of our financing requirements will be met through 2-year note and bill offerings.
Short-term Financing Needs
The introduction of the 4-week bill last August has reduced our reliance on cash management bills for bridging short-term cash shortfalls. The April swing in cash balances, however, will be too large to be accommodated by changes in regular weekly bill issuances. As a result, we expect to issue at least one off-cycle cash management bill in April.
At the last refunding, we listed three conditions that would determine whether any buyback operations would be conducted. As we stated then, our decisions on whether to conduct buyback operations, and on the amount and timing of any purchases, will be made at the time of our regular quarterly refunding announcements and will be based upon three factors: projections of the federal government's annual, unified surplus or deficit position; projections of that three-month period's cash position; and analysis of how best to minimize borrowing costs over time.
Given current circumstances, we will conduct three buyback operations before the next refunding, on April 18, April 23, and April 25, in order to lower high seasonal cash balances that we expect at that time. In these three operations, we expect to repurchase a total of $3 billion to $5 billion in long-dated securities.
Policy Issues Under Discussion
We are reviewing the application of the 35 percent rule, the reopening policy for 5-year and 10-year notes, and ways to enhance development of the market for 10-year Treasury Inflation-Indexed Securities. We are interested in suggestions from the public.
The 35 percent rule: We are examining ways in which the Net Long Position (NLP) rule (as it applies to the calculation of the 35 percent auction award limit) could better achieve its underlying objective and simultaneously facilitate faster, more efficient auctions. Changes under consideration include:: We are examining ways in which the Net Long Position (NLP) rule (as it applies to the calculation of the 35 percent auction award limit) could better achieve its underlying objective and simultaneously facilitate faster, more efficient auctions. Changes under consideration include:
- Whether the designated reporting time should be moved closer to the competitive auction closing time to better meet the rule's objective. It is now 30 minutes prior to the closing time for receipt of competitive bids. (31 CFR § 356.13(b), see the Uniform Offering Circular.
- Whether the entry of NLP data, and the deadline for its receipt at Treasury, should be split from bid submission to facilitate faster auctions. NLP data could be submitted at some time shortly after the auction.
We welcome suggestions on alternatives that would meet the twin goals of making auctions more operationally efficient and safeguarding the objective of the NLP rule.
Re-opening policy: In response to actual and projected surpluses, Treasury announced a regular re-opening policy for 5-year and 10-year notes at the February 2000 quarterly refunding. Treasury is now considering a return to regular quarterly issuance of new 5-year and 10-year notes without any pre-announced reopenings. Treasury will base its decision on the following factors:: In response to actual and projected surpluses, Treasury announced a regular re-opening policy for 5-year and 10-year notes at the February 2000 quarterly refunding. Treasury is now considering a return to regular quarterly issuance of new 5-year and 10-year notes without any pre-announced reopenings. Treasury will base its decision on the following factors:
- Treasury's borrowing needs;
- Liquidity needs in the marketplace;
- Future cash management considerations.
We also welcome suggestions on the 5-year and 10-year note issuance cycle.
Treasury's 10-year inflation-indexed notes: We continue to seek ways to develop the Treasury inflation-indexed security (TIIS) market. We are reviewing issuance size and frequency, as well as the re-opening policy for 10-year TIIS, to advance this goal.
Suggestions can be sent via email to email@example.com.
Treasury is committed to improving auction performance in order to minimize borrowing costs for taxpayers. (For elaboration of this policy, see Under Secretary Peter Fisher's January 8, 2002 remarks.
To track our progress, we will begin releasing performance statistics on a quarterly basis, beginning with the May quarterly refunding announcement. These indicators will include average auction release times for the previous quarter's auctions; identification of deviations beyond +/- 60 seconds from our current target release time of 6 minutes; and explanations for those deviations.
Cessation of 30-year Treasury Constant Maturity Yield Publication
As a result of the suspension of the 30-year bond, Treasury will no longer supply the Federal Reserve Board for publication in the H-15 Selected Interest Rates Release with an estimate of the 30-year constant maturity yield. Beginning on February 18, Treasury will submit to the Federal Reserve Board a long-term yield based on a basket of long-dated securities. This basket will consist of all Treasury securities with remaining terms to maturities of 25 years and over. The Treasury will also provide an extrapolation factor to the Federal Reserve Board to allow interested parties to obtain a proxy estimate of a 30-year yield.