MINUTES OF THE MEETING OF THE 

TREASURY BORROWING ADVISORY COMMITTEE 

OF THE PUBLIC SECURITIES ASSOCIATION 

FEBRUARY 1 AND 2, 1994 

Februarv 1 

The committee convened at 11:40 a.m. at the Treasury 

Department for the portion of the meeting that was open to the 

public. All members were present, except Mr. deRegt, Mr. McKnew, 

and Mr. Napoli. The Federal Reaister announcement of the meeting 

and a list of Committee members are attached. 

Deputy Assistant Secretary for Federal Finance Darcy 

Bradbury welcomed the Committee and the public to the meeting. 

Deputy Assistant Secretary for Economic Policy Brad DeLong gave a 

summary of the current state of the U.S. economy. I gave an 

informational briefing updating Treasury borrowing estimates and 

statistical information on recent Treasury borrowing and market 

interest rates. The borrowing estimates and other information in 

chart form had been released to the public on January 31, 1994. 

At 2:10 p.m. the Committee reconvened in closed session at 

the Madison Hotel. Deputy Assistant Secretary Bradbury gave the 

Committee its Charge, which is also attached. The Committee 

discussed the size of the February midquarter refunding operation 

and voted unanimously to recommend a $40 billion total refunding 

consisting of $17 billion of 3-year notes, $12 billion of lo-year 

notes, and $11 billion of long bonds, to raise $16 billion of new 

cash. 

A recommendation that the Treasury reopen 6-1/4% bond of 

August 15, 2023 was proposed, as was a proposal to recommend a 

new 29-3/4 year bond, maturing on November 15, 2023. Points made 

in favor of reopening were that the 6-114% bond is trading 

expensively in the cash and collateral markets, additional supply 

would increase the trading liquidity of the long-term market, 

particularly in the 6-114% bond, and the market expects a 

reopening. Members argued that the Treasury benefits over time 

from a new issuance policy that contributes to the liquidity of 

the market. 

Points in favor of a new 29-314 year bond were that a new 

issue would become the longest on-the-run issue and probably 

would be sold at a premium to the outstanding 6-114% bond. Also, 

a new issue with interest payments in May and November would 

enhance the liquidity of the STRIPS market, which in turn could 

re'duce the Treasury's cost of financing by increasing demand for 

long-term bonds. Some members expressed the view that smaller, 

more numerous issues would result in less trading liquidity, 

therefore, raising the yield on the outstanding issues and 

offsetting any advantage from issuing a new security. 
The Committee vote was: 10 in favor of a reopening; 4 in 

favor of a new 29 314 year bond; and 2 abstentions. 

The Committee consensus was that the Treasury can fill its 

borrowing need in the rest of the January-March quarter by 

maintaining the sizes of the regular marketable securities at 

their most recent levels and by issuing $9 billion of cash 

management bills in early March to mature on April 21. 

The consensus was also that maintaining issues at their 

current sizes, except for a reduction in the sizes of regular 

weekly bills beginning in the middle of June, would raise the $15 

to $20 billion that the Treasury needs in the April-June quarter. 

Furthermore, the consensus was that the Treasury should err 

on the high side of the $30 billion cash balance it estimated for 

June 30. 

Floatina rate note 

The Committee held a special meeting in June 1993 to discuss 

implementation of the Treasury's decision to shorten the maturity 

mix of new issues of marketable securities. While the Committee 

did not foresee a need for any new financing instruments in the 

near term, it proposed that the Treasury study the potential for 

adding a floating-rate instrument to the regular cycles at some 

unspecified point in time. 

In response to the questions that the Treasury raised in the 

Charge for the February 1994 refunding, the Committee reaffirmed 

the general view that the Treasury should pursue the floatingrate note concept. No vote was taken. The Committee suggested 

that the Treasury solicit information from people who have 

special expertise in the floating-rate note market. Meetings 

with investor groups active in the floating-rate note market were 

also suggested. 

Davliaht overdrafts 

The Treasury also solicited the Committee's views on market 

changes that might be expected from changes in the daylight 

overdraft regulations. The views are expressed in the Committee 

Report. No votes were taken on this subject. 

The meeting adjourned at 4:00 p.m. 
February 2 

The Committee reconvened at 9:04 a.m. at the Treasury in 

closed session. All members were present, except Messrs. deRegt, 

Kessnich, Lodge, McKnew, and Napoli. The Chairman presented the 

Committee report to Under Secretary for Domestic Finance Frank N. 

Newman, and Deputy Assistant Secretary Bradbury. 

Members of the Committee were asked to discuss the 

recommendation to reopen the 6-1/4% Treasury bond of August 15, 

2023, as opposed to issuing a new security. The majority 

believed a reopening would enhance of the trading liquidity of 

the 6-1/4% bond and would be consistent with the Treasury's 

reopening of securities in past refundings. Liquidity 

enhancement and predictability of Treasury issuance would lower 

the Treasury's cost of long-term borrowing over time. 

The minority believed that a new issue of 29-3/4 year bonds, 

which would mature in November 2023, would be cost-effective. 

The November corpus and May and November interest payments would 

make the bond attractive for stripping. It would also be likely 

to command an on-the-run premium. The combination of these 

factors would reduce the Government's long-term borrowing costs. 

Committee members stated that the Treasury should continue 

to explore the possibility of issuing floating-rate notes at some 

time in the future. However, so that the Treasury's research 

will not cause undue market speculation, they strongly 

suggested -- by consensus -- that the Treasury make a public 

statement that no decision has been on whether the Treasury will 

issue floaters and that no time deadlines have been set. 

The meeting adjourned at 9:40 a.m. 

February 2, 1994 

Attachments 

Certified by: 

~te#hen C. Francis, Chairman 

~reisury or row in^- Advisory Committee 

of the Public Securities Association