Press Releases


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Good morning. I am pleased to be with you today. Due to the Clinton Administration's policy of fiscal discipline we now face the challenge of managing a surplus instead of financing a deficit. Adjusting our debt management to this new environment of balanced budgets is an exciting challenge for the Treasury.

I will begin by announcing certain changes to the composition and frequency of our coupon security offerings. I will then announce the terms of the May quarterly refunding. Next, I will review Treasury's market borrowing requirements for the balance of the current calendar quarter and for the July-September quarter. Lastly, I will update you on our plans for inflation-indexed Treasury securities.

I. Changes to Coupon Offerings

The changes to our coupon offerings that we are announcing today help us to achieve the three principal goals of Treasury debt management: (1) sound cash management; (2) lowest cost financing for the taxpayers; and (3) the promotion of efficient capital markets. The changes also help us to advance the related principles of market liquidity, and balanced issuance across the yield curve.

Over the last two years, due to improving fiscal conditions, Treasury has reduced the issue sizes of our various offerings. In particular, the market in privately held Treasury bills has declined in overall size by $130 billion, or 22 percent.

We feel it is appropriate at this time to adjust our issuance cycle and the instruments that we offer, in order to continue to assure large, liquid issues in the coupon sector, and to promote greater liquidity in the short-term bill market. Consistent with this, we wish to (1) limit further contraction of net bill issuances; and (2) focus our coupon offerings around larger, less frequent offerings of benchmark securities.

More specifically, we plan to institute the following two changes:

First, Treasury will discontinue new issues of 3-year notes after the May refunding. This change is consistent with our practice of changing the specific instruments offered by the Treasury in response to market demands and Treasury borrowing needs. The 20-year bonds were discontinued in 1986, the 4-year notes were discontinued in 1991, and the 7-year notes were discontinued in 1993.

Second, we will reduce the frequency of new issues of 5-year notes, shifting to a schedule of quarterly issuances instead of monthly issuances. Thus, the 5-year note will replace the 3-year note in the quarterly refundings, starting in August. The last monthly 5-year note will be issued at the end of June. We expect that the offering size of each new quarterly 5-year note will increase substantially from the recent size of $11 billion.

The two changes announced today will enable us gradually to increase the size of our Treasury bill offerings. The changes should also help to prevent the average life of our marketable debt from increasing significantly as a result of bill auctions being reduced more than coupon auctions. In addition, in light of these changes, we plan to review our auction practices. We will consider extending the use of the single-price auction technique to the 10- and 30-year auctions in the regular quarterly refundings. Treasury has been conducting single-price auctions for 2- and 5-year notes since September 1992 and for inflation-indexed securities since their inception in January 1997.

II. Terms of the Quarterly Refunding

I will now turn to the terms of the quarterly refunding. We are offering $22.0 billion of notes, to refund $25.4 billion of privately held notes maturing on May 15 and to pay down approximately $3.4 billion.

The two securities are:

First, a 3-year note in the amount of $10.0 billion, maturing on May 15, 2001. This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, May 12.

Second, a 10-year note in the amount of $12.0 billion. This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Wednesday, May 13.

This is the first time in 20 years that the Treasury has announced an overall net pay down in a quarterly refunding.

III. Expectations for This Quarter and the Next Quarter

I would now like to review our expectations for the rest of this quarter and for the next quarter.

As announced on Monday, May 4, we estimate that we will net redeem $110 billion of marketable securities in the April-June quarter. The estimate assumes a $45 billion cash balance at the end of June. Including the securities announced in this refunding, we have already net redeemed $74.6 billion of marketable securities. (See the attachment for details.)

The tentative auction calendars for May, June, and July are included in the chart package that was distributed today. Short-term cash management bills may be needed to cover the low point in the cash balance in early June.

We estimate that the Treasury will borrow between $0 and $5 billion in marketable securities during the July-September quarter, assuming a $40 billion cash balance on September 30.

IV. Inflation-Indexed Securities

Finally, let me briefly update on our plans for inflation-indexed Treasury securities. Last month, we held our sixth auction of inflation-indexed securities: a new 30-year indexed bond. We were pleased with this auction, and we continue to be pleased with the development of the inflation-indexed market. As has been recommended by the Treasury Borrowing Advisory Committee, we are planning to sell a 30-year indexed bond in July 1998. We expect this will be a reopening of last month's issue. We plan to announce a regular schedule of indexed security issues by the end of this year. In addition, we expect to publish final rules on fungible indexed STRIPS next month.

The August quarterly refunding press conference will be held on Wednesday, August 5, 1998. I would now be happy to answer any questions that you may have.


Including the securities announced in this refunding, we have paid down $74.6 billion of cash from sales of marketable securities.

This has been accomplished as follows:

raised $8.4 billion from the 30-year inflation-indexed bonds issued April 15;

paid down $8.8 billion in the 7-year notes that matured April 15;

paid down $5.5 billion in the 2-year notes that were issued April 30;

raised $0 billion in the 5-year notes that were issued April 30;

paid down $11.9 billion in the regular weekly bills including those announced yesterday;

paid down $7.7 billion in the 52-week bills which were issued April 2 and 29;

paid down $45.8 billion of cash management bills that matured on April 16 and April 23; and

paid down $3.4 billion with the notes we are announcing today.