MINUTES OF THE MEETING OF THE 

PSA TREASURY BORROWING ADVISORY COMMITTEE 

APRIL 28 AND 29, 1992 

April 28 

The Committee convened at 9:00 a.m. at the Treasury 

Department. All members were present, except Mr. Corzine and Mr. 

Michaelcheck (see tfje attached list). 

I gave the Committee an informational background briefing 

updating Treasury borrowing estimates and historical information 

relevant to the May mid-quarter refunding. The borrowing 

estimates and background information had been released to the 

public on April 27, 1992. 

The Committee also received a briefing by a Treasury staff 

member on current economic conditions, which was followed by a 

question-and-answer period. Deputy Assistant Secretary (Federal 

Finance) Danker then llchargedll the Committee to make 

recommendations on the May Treasury refunding and related matters 

(see the attached Charge). The meeting adjourned at 10:40 a.m. 

The Committee reconvened at 2:30 p.m. at the Madison Hotel; 

all members were present, except Mr. Corzine and Mr. 

Michaelcheck. The discussion began with the total size of the 

May refunding. The Committee voted unanimously to recommend a 

$37 billion total refunding and a reopening of the 8 percent 

Treasury bond of November 15, 2021. The reopening was 

recommended to ensure the trading liquidity of the bond and to 

reduce the possibility of a market shortage of that issue. 

Mav refundinq 

The Committee voted 12 to 4 to recommend that the folluwing 

securities be offered in the May refunding: $15-1/2 billion of 

3-year notes; $11-1/4 billion of 10-year notes; and $10-1/4 

billion reopening of the 8 percent bond. The 4 noes preferred 

concentrating more of the refunding in the 10-year and 29 1/2- 

year issues. 

For the remainder of the April-June quarter and the JulySeptember quarter, the Committee consensus favored gradually 

increasing the sizes of existing issues, with the possible result 

that the end-of-June cash balance would approach $40 billion. A 

cash management bill in May or June, to mature before the end of 

June, was also recommended by consensus. The Committee noted 

that the Treasury could expand the size of the 52-week bills 

(sold every four weeks) by a significant amount. committee 

briefly discussed the potential need to add a new issue cycle to 

deal with financing needs after September, but made no specific 
recommendation. The Committee consensus was that a $30 billion 

cash balance would be acceptable at the end of September, and 

that a balance $10 billion higher would not be inappropriate. 

Sealed-bid. sinsle-price auction 

The Committee agreed (by consensus) that the current 

multiple-price auction technique works well for the Treasury. 

The Committee does not oppose experimenting with another way to 

auction Treasury securities. They believed, however, that the 

Treasury should wait to begin experimenting until after the 

Treasury-Federal Reserve conference on the auction technique that 

is to be held on June 3, 1992. 

The Committee believed that the Treasury should begin the 

experiment before automation of the auction is implemented, 

perhaps as early as July. They believed that experimentation for 

a period of 6 months to a year (to be specified in advance) would 

have the positive effect of providing the Treasury and the market 

experience with single-price auctions before automation permits 

the Treasury to conduct an on-line, iterative auction. The $5 

million maximum noncompetitive award should not be changed during 

the test period. By a vote of 9 to 7, the Committee recommended 

experimenting monthly with both the 2-year and the 5-year note 

auctions. The 7Gnoegreferred experimenting only with the 

monthly 5-year notes. The Committee consensus was that the 

Treasury should not experiment with bills. 

The Committee suggested that the Treasury take the following 

factors into consideration to evaluate the sealed-bid, singleprice auction experiment: 

Did the number of auction participants change? 

Did the volume of when-issued trading activity, 

relative to total market activity, prior to the auction 

change in any significant way? 

Was there a change in the net short position of dealers 

the day before the auction? 

Was there a larger number of small bidders? 

Was there a change in intraday price volatility in the 

pre-auction or post-auction when-issued trading 

periods? 

Was there a significant change in auction coverage at 

each basis point bid? 

Was there any change in noncompetitive bidding volume? 
Tv~e of auction for reo~eninq 

The Committee recommended by consensus using the 

discriminating-price technique to reopen any Treasury security 

that is subject to an acute, protracted shortage. The purpose of 

issuing the additional amount is to remedy a distortion in the 

market and, thus, is different from that of Treasury's regularly 

scheduled auctions. The Committee believed the discriminatingprice auction in this case would result in a higher price to the 

Treasury than a single-price auction. The Committee consensus 

was that Treasury should announce an amount to be sold in a 

reopening, with the possibility of overallotments, depending upon 

market demand at a yield that is acceptable to the Treasury. 

The meeting adjourned at 4:45 p.m. 

The Committee reconvened at 9:00 a.m. at the Treasury. All 

members were present, except Messrs. Corzine, Menne, and 

Michaelcheck. The Chairman presented the Committee report to 

Assistant Secretary Powell. There was a question-and-answer 

period related to the recommendations. The meeting adjourned at 

9:40 a.m. 

Attachments 

&ill K. Ouseley, blirector 

Office of Market Finance 

Domestic Finance 

May 1, 1992