U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon. I will begin with today's refunding announcement and the terms of the regular TreasuryAugust quarterly refunding. I will also discuss Treasuryfinancing requirements for the balance of the current calendarquarter and our estimated cash needs for the October-December1997 quarter. I will then discuss certain other debt managementissues.

1. We are offering $38.0 billion of notes andbonds to refund $26.8 billion of privately held notes maturing onAugust 15 and to raise approximately $11.2 billion of cash.

The three securities are:

-- First, a 3-year note in the amount of $16.0 billion, maturing on August 15, 2000. This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, August 5.

-- Second, a 10-year note in the amount of $12.0 billion, maturing on August 15, 2007. This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Wednesday, August 6.

-- Third, a 30-year bond in the amount of $10.0 billion, maturing on August 15, 2027. This bond is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Thursday, August 7.

 

2. As announced on Monday, July 28, we estimate anet market borrowing need of $10 billion for the July-Septemberquarter. The estimate assumes a $40 billion cash balance at theend of September. Including the securities announced in thisrefunding, we have raised $12.0 billion of cash from sales ofmarketable securities. See the attachment for details.

3. The Treasury will need to pay down $2.0billion in market borrowing during the rest of the July-Septemberquarter. This paydown can be accomplished during the regularsales of 13-, 26-, and 52-week bills in August and September and2- and 5-year notes in August and September. Another cashmanagement bill, in addition to the one announced yesterday, maybe needed to cover the low point in the cash balance in earlySeptember. The tentative auction calendars for August, September,and October are included in the chart package that wasdistributed today.

4. We estimate Treasury net market borrowing tobe in a range of $45 billion to $50 billion for theOctober-December quarter, assuming a $30 billion cash balance onDecember 31.

5. As part of its report today, the BorrowingAdvisory Committee suggested that Treasury make all fixed-ratenotes eligible for stripping. We are in the process of evaluatingthis proposal and its potential value to market participants.

6. Earlier this month, we held our third auctionof inflation-indexed securities. It was the first auction of5-year indexed notes. We were pleased with this most recentauction. The development of the inflation-indexed market is along-term process, and we have made a long-term commitment tothis market. We have taken many important steps, but there arestill more to go. In October, we expect to reopen the issue of5-year indexed notes auctioned earlier this month, and in Januarywe expect to sell a new 10-year indexed note. We will sell a30-year indexed bond next year, and next year we also intend toestablish a regular schedule for the issuance of 5-, 10-, and30-year inflation-indexed securities.

7. At the last refunding press conference,Secretary Rubin announced some very important changes to theinterest rate structure for Series EE Savings Bonds purchased onor after May 1, 1997. The response to those changes has been verypositive. It is too early, however, to evaluate the impact of thechanges on the Savings Bonds program.

8. At the February refundingpress conference, we discussed two proposals of the BorrowingAdvisory Committee: to implement half-decimal bidding in regularbill auctions and to reduce the net long position reportingthreshold in bill auctions to $1 billion. Shortly after the Mayrefunding press conference, we issued the proposals for publiccomment. We received only one comment, which was generallyfavorable. We expect to issue final rules soon on the proposalfor half-decimal bidding in regular bill auctions. We expect toimplement this change once tests on our computer systems arecomplete. The timetable will also give the market time toimplement this change.

In addition, we expect to issue final rules soonon the proposal to reduce the net long position reportingthreshold for bill auctions to $1 billion. This change recognizesreduced bill auction sizes, particularly seasonally lower amountsof the bills in the first half of a calendar year. We expect togive the market sufficient time to implement this change also.

9. Last month, we conducted a test ofTreasury’s large position reporting requirements that becameeffective on March 31. We conducted the test not because we sawany market dislocations, but because we wanted to test bothfirms’ reporting systems and the procedures for notifyingthe market of a call for large position information. Since thetest, we have been discussing the results with various marketparticipants. The questions we are interested in are:

-- Did firms receive notice of the test?

-- How?

-- When?

-- Did the notice go to the right place in thefirm?

-- Did the aggregation of positions across a firmand its subsidiaries go smoothly?

-- Was there sufficient time to complete theaggregation? -- And, do they have any suggestions for improvingthe distribution process of the notice announcing the call forlarge positions?

What we have found is that, by and large, mostfirms received the notice promptly and were able to and didcomply with the call for large position information. We did find,however, a few instances where firms did not receive the noticetimely or the right place in the firm did not get the noticetimely. We have talked with those firms about the need to improvetheir systems. We have also received some suggestions to improvethe process for notifying the market of the call for largeposition information, and we are currently evaluating thosesuggestions.

10. The November quarterly refunding pressconference is scheduled to be held on Wednesday, October 29.

ATTACHMENT

CASH RAISED

Including the securities announced in thisrefunding, we have raised $12.0 billion of cash from sales ofmarketable securities.

This was accomplished as follows:

-- raised $8.4 billion from the 5-year inflation-indexed notes issued on July 15;

-- paid down $8.4 billion in the 7-year notes maturing July 15;

-- raised $0.2 billion from the 5-year notesissued July 31;

-- paid down $2.3 billion in the 2-year notes issued July 31;

-- raised $4.3 billion in the regular weeklybills including those announced yesterday;

-- paid down $1.4 billion in the 52-week billsissued July 24;

-- raised $11.2 billion with the notes and bonds announced today.

 

The $18 billion of 48-day cash management billsannounced yesterday will mature September 18, 1997 and thereforedo not affect the quarterly total of cash raised.