FROM THE OFFICE OF PUBLIC AFFAIRSRR-2782
Good morning. I am pleased to be with you today to announce the November quarterly refunding. I will also take this opportunity to discuss some other debt management matters, including uniform-price auctions, and our continuing efforts to encourage saving and to broaden access to our securities.
We are privileged to be here at a remarkable turning point in our nation's financial history. In the last fiscal year, Treasury debt managers made the transition from financing a deficit, to managing a surplus. We paid down $110 billion in marketable debt in FY 1998. This compares to net borrowing of $187 billion just three years ago. Our privately held marketable debt outstanding has declined to $2.857 trillion, compared to a peak of $3.010 trillion in September 1996.
The fiscal discipline imposed during the Clinton Administration has been critical to achieving this success. The net pay-down attributable to the surplus, combined with our financing and other accounts, and net of changes in our cash balance, accounted for approximately $55 billion of the pay-down. The rest of the pay-down was financed by our issuance of about $55 billion in non-marketable securities, primarily the State and Local Government Series (or SLGS). SLGS are a very cost-efficient form of financing for us. The $110 billion reduction in privately held marketable debt was a significant accomplishment.
Before I turn to the terms of the quarterly refunding, I would like to announce that Treasury has decided to expand the use of uniform-price auctions to the sale of all marketable Treasury securities. This will include all bills, notes and bonds. We will begin implementing this change with the cash management bill to be auctioned on Monday. The Borrowing Advisory Committee was strongly in favor of adopting this change.
We have been using the uniform-price auction technique for 2- and 5-year note auctions since September 1992. For our bills and other coupon securities, we have been using a multiple-price approach. Based on our experience, we believe that there are several advantages to using uniform-price auctions: First, we have found that single-price auctions result in a broader distribution of auction awards. Second, the shift to uniform-price auctions will bring consistency to our auction procedures and techniques. And third, we have found that, consistent with auction theory, auction participants may bid more aggressively in uniform-price auctions. This is because successful bidders in uniform-price auctions are able to avoid the winner's curse. They pay only the price of the lowest accepted bid, rather than the actual price they bid, as in the multiple-price approach. Thus, we believe that using uniform-price auctions will promote improved efficiency in the markets, and will reduce the costs of financing the Federal debt.
Terms of the November Refunding
I will turn now to the terms of the quarterly refunding. We are offering $38 billion of notes and bonds to refund $27 billion of privately held notes and bonds maturing on November 15, and to raise approximately $11 billion of cash.
The securities are:
- First, a 5-year note in the amount of $16.0 billion, maturing on November 15, 2003. This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, November 3.
- Second, a 10-year note in the amount of $12.0, maturing on November 15, 2008. This note is scheduled to be auctioned on a yield basis, at 1:00 p.m. Eastern time on Wednesday, November 4.
- Third, a 30-year bond in the amount of $10.0 billion, maturing on November 15, 2028. This bond is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Thursday, November 5.
We are also announcing a cash management bill in the amount of $25 billion, to be auctioned on Monday, November 2, at 11:30 Eastern time, and to be settled on November 3. The bills will mature on January 21.
As announced on Monday, October 26, we estimate that our net market borrowing will total $30 billion in the October- December quarter. This is based on a conservative estimate that there will be no net new issuances of SLGS, which is a significant change for us. The borrowing estimate also assumes a $15 billion cash balance at the end of December. Including the securities we are announcing today, we have raised $10 billion of cash from sales of marketable securities. See the attachment for details.
Looking forward to the January-March quarter, we estimate that the Treasury will borrow between $15 and $20 billion in marketable securities during that quarter, assuming a $20 billion cash balance on March 31.
Next, I would like to say a few words about our continuing efforts to encourage savings, and to broaden access to U.S. savings bonds and marketable securities for all investors. I will start with an update on our savings bond program.
Today, we are announcing EasySaver, a new, convenient way to make regular investments in our Series I and Series EE savings bonds. Beginning Monday, November 2, an investor will be able make regular and automatic investments in savings bonds by authorizing direct transactions between the Treasury and the investor's bank. By completing a simple order form, the investor can authorize Treasury to charge the investor's bank account for the purchase of savings bonds, on any months and days specified by the investor. The only condition is that the investor must purchase at least two bonds per year per recipient either for the investor or for a family member. The order form may be requested on the Public Debt website, or by a toll-free telephone call. See the separate EasySaver press release for details.
We are very pleased to have with us today, John Fickewirth, who heads up the savings bond volunteer sales effort in Ventura County, CA. John is a small businessman who wanted to find a way to make it easy to enjoy the benefits of regular savings. He came to us with the basic idea that evolved into the EasySaver program. We would like to thank John for taking the initiative and bringing his idea to our attention.
I am also happy to report that the new inflation-indexed Series I savings bonds got off to a strong start. As many of you may recall, the new I Bonds went on sale on September 1. In the first month, sales hit $17.4 million, and we have sold $18.6 million more through October 22.
We are pleased with these initial results. The I Bond is a new type of investment for small investors it is an affordable Treasury security that protects the purchasing power of their principal and provides an attractive return over and above inflation. We look forward to continued growth in I Bond sales, especially as more investors learn about these new securities.
Marketables for Smaller Investors
In addition to making changes to our savings bond program, we have recently taken several steps to broaden investor access to our marketable securities. In August, we lowered the minimum purchase amount for all marketable securities to $1,000. We are pleased to report that in September, we received over 3,000 tenders for amounts below the old minimum levels for bills and notes in Treasury DIRECT, accounting for 14 percent of all Treasury DIRECT tenders.
On September 14, we modified Treasury DIRECT to allow investors to purchase marketable securities over the Internet at the Bureau of the Public Debt's website. Since the program's inception, more than 1,300 Treasury DIRECT customers have bought $31 million in bills and notes over the Internet.
Finally, our new telephone purchase program for Treasury DIRECT investors, which began on October 5, has also been successful. Treasury DIRECT customers are now able to put their tenders into the auction by touch-tone telephone. In less than three weeks, we received 1,700 telephone tenders for $65 million of bills and 2-year notes.
Thank you for your attention. The next quarterly refunding will be announced on February 3, 1999.
Including the securities that we are announcing today, we have raised $10 billion in sales of marketable securities.
This was accomplished as follows:
- raised $8.4 billion from the 30-year inflation-indexed notes issued on October 15;
- paid down $10.3 billion in the 7-year notes maturing October 15;
- paid down $3.9 billion from the 2-year notes to be issued November 2;
- will pay down a total of $33.9 billion in the 5-year notes maturing October 31, November 30, and December 31;
- raised $15.8 billion in the regular weekly bills including those to be issued tomorrow;
- paid down $2.1 billion in the 52-week bills issued October 15;
- raised $11.0 billion with the notes and bonds announced today; and raised $25 billion with 79-day cash management bills announced today.