MINUTES OF THE MEETIN &HE 

- TREASURY BORROWING ADVISORY COMMITTEE 

OF THE PUBLIC SECURITIES ASSOCIATION 

July 30 and 31, 1996 

July 30 

The Committee convened at 11:35 a.m. at the Treasury 

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

public. All members were present, except Mr. Kessenich. The 

Federal Reqister announcement of the meeting and a list of 

Committee members are attached. 

Deputy Assistant Secretary for Financial Federal Finance 

Roger Anderson welcomed the Committee and the public to the 

meeting. Assistant Secretary for Economic Policy Gotbaum 

summarized the current state of the U.S. economy. Jill Ouseley, 

Director, Office of Market Finance, presented the chart show, 

which had been released to the public on July 29, updating 

Treasury borrowing estimates and providing statistical 

information on recent Treasury borrowing and market interest 

rates. 

The public meeting ended at 12:10 p.m. 

Ausust refundinq 

The Committee reconvened in closed session at the Madison 

Hotel at 2:15 p.'m. The members were present who had attended the 

public briefing. Deputy Assistant Secretary Anderson gave the 

Committee its Charge, which is also attached. 

The Committee began by considering the attached proforma 

financing plan for the July-September quarter that had been 

prepared in advance by one of the members, using the market 

borrowing estimates that were released by the Treasury on July 

29. The Committee began with a discussion of whether to 

recommend reopening the 10-year note issued in July 1996. They 

voted unanimously to recommend reopening that note in part to add 

to its liquidity in the secondary market. 

The Committee then discussed the sizes of the refunding 

issues. Two-packages were presented: 

$19 billion of 3-year notes, $10 billion of 9-11/12 year 

notes in a reopening, and $10-billion of 30-year bonds -- 

which received 16 votes; and 

$19 billion of 3-year notes, $9 billion of 9-11/12 year 

notes in a reopening, and $11 billion of 30-year bonds -- 

which received 2 votes. 
The committee did not see a need for cash management bills 

as part of the August refunding. The consensus was that, if the 

Treasury were to trim the size of the refunding package, the 3- 

year note sizeshould be reduced. The Committee also foresees 

that the Treasury will need to issue short-term cash management 

bills for the period from early September until after the 

September 15 tax payment date. 

The Committee consensus was that the proforma financing plan 

suggested for the October-December seemed appropriate. 

Inflation-wrotection securities 

The Chairman opened the discussion with a description of the 

Canadian structure and the current pay structure that the 

Treasury had published as possibilities for inflation-protection 

securities. Deputy Assistant Secretary provided a brief summary 

of the discussion at the symposium held at the Treasury on July 

24,, 1996, on the structure of the inflation-protection 

securities. 

The Committee began by discussing the possible impact of 

deflation on the value of the inflation-protection bonds, then 

turned to the specific questions in the Charge: 

Structure: In the Canadian model the impact of inflation on 

the principal accrues over the life of the bond and a fixedinterest coupon is paid currently on the inflation-adjusted 

principal. In the current-pay method, all of the return that is 

attributable to inflation and a fixed interest rate are paid each 

6 months. The Committee consensus was each model has advantages. 

The Canadian model would attract pension funds, insurance 

companies, and individual self-directed retirement savings 

through 401(k) plans. The current pay structure would attract 

mutual funds and other investors that are not tax-advantaged and 

accounts that need greater liquidity. The Committee pointed out 

that there are tradeoffs between trying to provide inflation 

protection Over the longer term and the short-term considerations 

pertaining to market liquidity. 

Multiple maturities: The Committee consensus recommendation 

is that the.Treasury pick one maturity at least in the beginning, 

with the preference being for 10 years. 

Awarding less than the announced amount: The Committee 

consensus is that the Treasury should cut back from the announced 

amount only under extreme circumstances. 

Othek: The consensus was that when-issued trading for 

inflation-protection securities should be longer than that for 

conventional Treasury securities to give market participants more 

time for price discovery. A 1-week minimum for the WI period was 
suggested,'although this is no longer than the usual WI period 

for the regular midquarter refunding operation. 

The meeting adjourned' at 4: 15 p.m. 

The Committee reconvened at 8:30 a.m. at the Treasury in 

closed session. All members were present, except Mr. Kessenich 

and Mr. Lodge. The Chairman presented the Committee report 

(copy attached) to Assistant Secretary Bradbury and Deputy 

Assistant Secretary Anderson. 

In response to questions, the Committee discussed briefly 

the amount of time needed by dealers and investors between the 

Treasury's final announcement of details of inflation-protection 

securities and the first auction. It will be necessary for 

market participants to make computer systems changes, and to test 

them, before the first auction. That time period was estimated 

in a range of 3 to 6 months. 

The meeting adjourned at 9:05 a.m. 

( /off ice of Market ~inak&e 

V~omestic Finance 

July 31, 1996 

Attachments 

Certifiedby: X~cC2-I( (c( 

Richard Kelly, qhairman 

Treasury Borrowing ~dvisory Committee 

of the Public Securities Association 

- - July 31, 1996