MINUTES OF THE MEETING OF THE

TREASURY BORROWING ADVISORY COMMITTEE

OF THE BOND MARKET ASSOCIATION

August 3, 1999

The Committee convened at 9:00 a.m. at the Treasury Department for the portion of the 

meeting that was open to the public. All members were present except Mr. Stark and Mr. 

Wardlaw. The Federal Register announcement of the meeting and a list of Committee members 

are attached. 

Under Secretary for Domestic Finance Gary Gensler welcomed the Committee and the 

public to the meeting. John Auten, Director, Office of Macroeconomic Analysis, summarized 

the current state of the U.S. economy (statement attached). Paul Malvey, Acting Director, 

Office of Market Finance, presented the chart show, which had been released to the public on 

August 2, updating Treasury borrowing estimates and historical debt and interest rate statistics. 

The public meeting ended at 9:40 a.m. 

The Committee reconvened in closed session at the Madison Hotel at 11:45 a.m. All 

members were present except Mr. Stark and Mr. Wardlaw. Assistant Secretary Sachs gave the 

Committee its Charge, which is also attached. 

The Committee began by reviewing a proforma financing plan (attached) for the JulySeptember quarter. The Committee unanimously agreed to the August refunding 

recommendation contained in the financing plan. That is, the Committee recommended new 

issues of 5-year notes in the amount of $15 billion, of 10-year notes in the amount of $12 

billion, and of 30-year bonds in the amount of $10 billion. There were no recommendations 

for reopenings. 

In response to the question in the Charge pertaining to recommended changes in 

financing patterns, the Committee observed that liquidity in the Treasury market is deteriorating. 

They discussed the long-term importance of maintaining large, liquid supplies of Treasury bills 

and of notes and bonds. A number of members pointed out the trade-offs between the shortterm costs savings to Treasury of having some scarcity value built into the value of on-the-run 

securities, because of the strong demand relative to supply, and the long-term savings resulting 

from maintaining large, liquid, world benchmark markets. The clear consensus of the 

members is that the apparent short-term savings that might be gained from the excess demand 

relative to supply for the on-the-run securities is more than offset by the longer term costs 

associated with a loss of liquidity and benchmark status. 

The Committee proposed that the Treasury establish a policy of regular reopenings of 

coupon securities, that could be complemented by a regular program of buybacks. For 
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example, it was suggested that Treasury could offer two rather than four new 10-year notes per 

year, reopening each 10-year note once at the subsequent quarterly offering. Another 

suggestion was that the Treasury offer a new 2-year note in the beginning of each quarter and 

reopen it two times, for four new 2-year notes per year. A program of buybacks would 

complement a reopening policy by using funds from issuance of new securities to purchase 

older, off-the-run securities. Currently, however, the Treasury=s original issue discount (OID) 

rules would prohibit a reopening if the price of the outstanding security were to fall below a 

certain level, unless Treasury determined there was an acute and protracted shortage in the 

security. The Committee unanimously recommended that Treasury seek to change its OID 

rules in order to gain more flexibility with reopenings. And finally, the Committee 

recommended that any cutbacks in nominal securities be accompanied by comparable cutbacks 

in the inflation-indexed securities. The Committee recommended the three proposals by a 

consensus vote. 

Regarding adjustments to the offering cycles of 1-year bills and 2-year notes, the 

Committee clearly favored making changes to the 1-year bill cycle first. For cash management 

purposes, it was thought reducing the frequency of year bills would be easier to manage 

without undue reliance on cash management bills. Monthly 2-year notes mature at ends of 

months, along with 5-year notes, which taken together currently amount to about $26-28 

billion. Year bill maturities, however, are on a 4-week cycle with maturities at various times 

during months. Regarding the impact on the debt markets, Committee members indicated that it 

was more important to maintain benchmark 2-year notes on a monthly cycle. Reducing the 

frequency of year bills, or eventually eliminating them, and distributing the financing needs to 

3-month and 6-month bills was viewed as more readily acceptable to the markets. 

Regarding the October-December quarter, the Committee was satisfied to follow the 

financing plan in the proforma table (also attached), amended to include a $2 billion decline in 

the October indexed note auction, and to include an increase in bill offerings of about $2 billion 

per week as described below. 

The Committee unanimously recommended that Treasury achieve its $80 billion targeted 

end-of-December cash balance by increasing weekly bill offerings by about $2 billion and 

maintain that level through the fourth quarter. The higher weekly bills could be supplemented 

by cash management bills that are traditionally issued in late November and early December. 

The meeting adjourned at 12:45 p.m. 

The Committee reconvened at the Madison Hotel at 6:00 p.m. All members were 

present except Mr. Pike. The Chairman presented the Committee report to Assistant Secretary 

Lee Sachs. A brief discussion followed the Chairman=s presentation, but did not raise 

significant questions regarding the report=s content. 
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The meeting adjourned at 6:10 p.m. 

Paul F. Malvey, Acting Director 

Office of Market Finance 

August 4, 1999 

Certified by: 

Kenneth M. deRegt, Chairman

Treasury Borrowing Advisory Committee

of The Bond Market Association

August 4, 1999