MINUTES OF THE MEETING OF THE

TREASURY BORROWING ADVISORY COMMITTEE OF 

THE BOND MARKET ASSOCIATION

May 1, 2001 

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 Messrs. Francis, Ahearn, and Davis. The Federal Register 

announcement of the meeting and a list of Committee members are attached. 

The Committee was welcomed by the Deputy Assistant Secretary for Federal Finance, Michael Paulus. John 

Auten, Director, Office of Macroeconomic Analysis, summarized the current state of the U.S. economy 

(statement attached). Fred Pietrangeli, Senior Economist for the Office of Market Finance, presented the chart 

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

The public meeting ended at 9:30 a.m. 

The Committee reconvened in closed session at the Madison Hotel at 11:50 a.m. All members were present 

except Messrs. Francis, Ahearn, and Davis. Deputy Assistant Secretary Paulus gave the Committee its Charge, 

which is also attached. 

The Committee began by discussing the potential structure of a 4-week bill. The Committee reiterated its 

statement from the February report, noting that cash management bills (CMBs) tend to be an expensive means of 

financing and that a regular 4-week bill issued weekly could serve to help mitigate large swings in cash balances 

so that reliance on large expensive CMB financing could be reduced or eliminated. 

Regarding whether a 4-week bill should be issued as a reopening, there was general consensus that 4-week bills 

should be issued as reopenings with maturity dates corresponding to the maturity dates of the regular 13- & 26 

week bills in order to enhance liquidity. There was some debate regarding the minimum and maximum size of a 

4-week bill offering. The debate was premised on the members' view as to whether 4-week bills would replace 

CMBs. 

Some members believed that a program of regular 4-week bill offerings could serve as a replacement for CMBs, i. 

e., that CMBs could be eliminated altogether. Others saw a 4-week bill as serving to mitigate large swings in cash 

balances, reducing but not eliminating reliance on CMBs. In either case, members noted that regular issuance of a 

shorter-term security would be necessary to establish a consistent investor base beyond repo desks. The minimum 

issue amount was seen at about $5 billion. With a consistent investor base, the members who see a 4-week bill 

eliminating the need for CMBs, felt that the maximum size of a regular 4-week bill offering could be quite large 

(up to $40 billion) and could vary significantly from week to week. 

The members who viewed the 4-week bill as a vehicle that would allow Treasury to greatly reduce its reliance on 

CMBs still see a need for CMBs to address the very largest of seasonal cash needs. These members felt that 

Treasury would be better off stating a broad, but limited, issue size range (from $5 billion to $15-20 billion). The 

upper bound would give the market better information on potential supply and result in more favorable rates for 

Treasury. 

The Committee generally felt that a 4-week bill offering should be auctioned on a day other than the 13- and 26­

week bills, and the consensus was for the day following the 13- and 26 week bill auctions. One member stated 

that less capital would be committed to each auction if three auctions were to be conducted on the same day, and 

thus, bidding for the securities might be less aggressive. 

The Committee next turned its attention to the question in the charge regarding the current rule that the limits 

maximum auction awards to a single bidder. The current rule regarding maximum auction awards to a single 

bidder states that the sum of a bidderís net long position (NLP) in a security and its auction award must not 

exceed 35 percent. With Treasuryís policy of regular reopenings, i.e., large initial issuance and smaller 

reopenings, there is an increased likelihood of a single bidder being precluded from participating in a reopening 

because the 35 percent is calculated on the reopening amount only but the NLP requirement also includes 

holdings of the outstanding security. 
The Committee felt that the rule should be changed so that only long when-issued positions plus the award 

amount do not exceed 35 percent in any auction, whether for a new or reopened security. Secondary market 

maldistributions could be addressed through other existing regulatory mechanisms. There was additionally some 

debate over whether 35 percent was the "right" threshold number. A large majority of members felt that there was 

a need for some threshold limit, particularly as auction sizes were declining, but were unprepared to state what 

that limit might be. One member expressed the view that there should be no limit, i.e., the rule be eliminated 

entirely. 

The Committee also felt that Treasury should clarify for market participants that the "35 percent rule" is effective 

at auction time even though the dealers are required to report their respective NLPs thirty minutes prior to an 

auction. 

Regarding the composition of the quarterly refunding, by a unanimous vote, the Committee recommended a $12 

billion issue of a 5-year note and a reopening of the 5 percent 10-year notes of 2/15/11 in an amount of $8 billion. 

Looking at the remainder of the April-June quarter, the Committee recommended that the 2-year notes be held at 

$10 billion for May, and that weekly bills be increased from $18 billion level to $20 billion level starting in mid 

May. 

The Committee's had a brief discussion about the composition of financing for the July- September quarter. It was 

the consensus of the Committee that Treasury should continue to provide the markets with ample notice about 

changes in issue cycles and the menu of securities offered. The Committee felt that it was time to eliminate the 

inflation-indexed security program because of the additional interest costs it was posing to the Treasury. The 

Committee urged the Treasury to decide as soon as possible on the fate of the 30-year bond and to proceed with 

the development of rules for exchange offerings. At the same time, some Committee members felt that until the 

fiscal situation became clearer, Treasury should refrain from any significant changes in cycles and offerings. 

Recommendations for the July-September quarter are in the attached table. 

The meeting adjourned at 12:55 p.m. 

The Committee reconvened at the Madison Hotel at 6:00 p.m. All members were present except Messrs. Francis, 

Ahearn, and Davis. The Chairman presented the Committee report to Acting Under Secretary Don Hammond and 

Deputy Assistant Secretary Paulus. A brief discussion followed the Chairman's presentation, but did not raise 

significant questions regarding the report's content. 

The meeting adjourned at 6:15 p.m. 

Paul F, Malvey, Director 

Office of Market Finance 

May 1, 2001 

Attachments 

Certified by: 

James R. Capra, Chairman

Treasury Borrowing Advisory Committee 

of The Bond Market Association 

May 1, 2001

Last Updated May 2, 2001


May 1, 2001 

COMMITTEE CHARGE

The Treasury Department would like the Committeeís advice on the following: 

Treasury financing 

• With increased volatility in receipts, reduced coupon financings, and the elimination of the 52­

week bill, the volatility of Treasuryís cash balance has increased significantly over the last few 

years. The Treasury is studying issuance of a 4-week bill to help mitigate the large swings. What 

would your recommendations be regarding such issuance: new CUSIP or reopening; minimum 

and maximum sizes; 4-week cycle or monthly cycle; regular weekly issuance or only at certain 

times of the year? 

• The current rule regarding maximum auction awards to a single bidder states that the sum of a 

bidderís net long position (NLP) in a security and its auction award must not exceed 35 percent. 

With Treasuryís policy of regular reopenings, i.e., large initial issuance and smaller reopenings, 

there is an increased likelihood of a single bidder being precluded from participating in a 

reopening because the 35 percent is calculated on the reopening amount only but the NLP 

requirement also includes holdings of the outstanding security. For example, if $10 billion of a 

security is offered initially and it is reopened for $5 billion, a single bidder with a NLP in the 

outstanding security of $1.75 billion cannot bid for the reopened security. Should Treasury 

consider modifying the current rule to allow for greater participation in reopenings? Among 

possible alternatives are: computing the 35 percent calculation on the sum of the initial and 

reopened auction amounts; excluding holdings of the already outstanding security from the NLP 

calculation and computing it only on the reopening amount; eliminating the NLP reporting 

requirement and reducing the 35 percent limit; or other suggestions. 

• The composition of a financing with 5-year and 10-year notes to refund approximately $21.4 

billion of privately held notes maturing on May 15 and to pay down approximately $1-2 billion. 

• The composition of Treasury financing for the remainder of the April-June quarter and for the 

July-September quarter. 
Federal Register / Vol. 68, Monday, April 9, 2001 / Notices 

DEPARTMENT OF THE TREASURY

DEBT MANAGEMENT ADVISORY

COMMITTEE MEETING

Notice is hereby given, pursuant to 5 U.S.C. App. §10(a)(2), that a meeting will be held at the U.S. 

Treasury Department, 15th and Pennsylvania Avenue, N.W., Washington, D.C., on May 1, 2001, of the 

following debt management advisory committee: 

The Bond Market Trade Association 

Treasury Borrowing Advisory Committee 

The agenda for the meeting provides for a technical background briefing by Treasury staff, followed by 

a charge by the Secretary of the Treasury or his designate that the committee discuss particular issues, 

and a working session. Following the working session, the committee will present a written report of its 

recommendations. 

The background briefing by Treasury staff will be held at 9:00 a.m. Eastern time and will be open to the 

public. The remaining sessions and the committee's reporting session will be closed to the public, 

pursuant to 5 U.S.C. App. §10(d). 

This notice shall constitute my determination, pursuant to the authority placed in heads of departments 

by 5 U.S.C. App. §10(d) and vested in me by Treasury Department Order No. 101-05, that the closed 

portions of the meeting are concerned with information that is exempt from disclosure under 5 U.S.C. 

§552b(c)(9)(A). The public interest requires that such meetings be closed to the public because the 

Treasury Department requires frank and full advice from representatives of the financial community 

prior to making its final decision on major financing operations. Historically, this advice has been 

offered by debt management advisory committees established by the several major segments of the 

financial community. When so utilized, such a committee is recognized to be an advisory committee 

under 5 U.S.C. App. §3. 

Although the Treasury’s final announcement of financing plans may not reflect the recommendations 

provided in reports of the advisory committee, premature disclosure of the committee’s deliberations 

and reports would be likely to lead to significant financial speculation in the securities market. Thus, 

these meetings fall within the exemption covered by 5 U.S.C. §552b(c)(9)(A). 

The Office of Financial Markets is responsible for maintaining records of debt management advisory 

committee meetings and for providing annual reports setting forth a summary of committee activities 

and such other matters as may be informative to the public consistent with the policy of 5 U.S.C. §552b. 

Michael J. Paulus 

Deputy Assistant Secretary, Federal Finance 

Dated: April 2, 2001 
Treasury Borrowing Advisory Committee

of the Public Securities Association

Chairman

James R. Capra 

President

Capra Asset Management, Inc.

555 Theodore Fremd Avenue, Suite C-204

Rye, NY 10580 

Vice Chairman 

Timothy W. Jay 

Managing Director

Lehman Government Securities, Inc. 

Daniel S. Ahearn

President

Capital Markets Strategies Co.

50 Congress Street, Suite 816

Boston, MA 02109

Keith T. Anderson 

Chief Investment Officer, 

Fixed Income BlackRock 

345 Park Avenue 

New York, NY 10154

Richard A. Axilrod

Managing Director

Moore Capital Management, Inc.

1251 Avenue of the Americas, 53rd Floor

New York, NY 10020

Ian Godwin Banwell 

Co-Chief Investment Officer 

Bank of America 

100 N. Tryon Street, NCI-007-06-06 

Charlotte, NC 2855-001 

Richard S. Davis

Senior Vice President -

Head of Fixed Income Investments

Metlife Investments

334 Madison Avenue, PO Box 633

Convent Station, NJ 07961-0633

Stanley F. Druckenmiller

Chariman and Chief Executive Officer

Duquesne Capital Management LLC

900 Third Avenue, 29th Floor 

New York, NY 10166

200 Vesey Street, 9th Floor 

New York, NY 10285 

Stephen C. Francis

Vice Chairman

Fischer, Francis, Trees & Watts, Inc.

200 Park Avenue

New York, NY 10166

Lisa W. Hess

Managing Director

Zesiger Capital Group LLC

320 Park Avenue

New York, NY 10022

Thomas L. Kalaris 

President Barclays Capital Inc.

222 Broadway 

New York, NY 10038

James Marks Keller

Executive Vice President/Portfolio 

Manager

Pacific Investment Management Co.

840 Newport Center Dr., Suite 300

Newport Beach, CA 92660 

Wayne D. Lyski

Chairman & Chief Investment Officer

Alliance Fixed Income Investors

Alliance Capital

Management Corporation

1345 Avenue of the Americas

New York, NY 10105

Thomas G. Maheras

Vice Chairman/Head of FID

Salomon Smith Barney

390 Greenwich Street, 4th Floor

New York, NY 10013 

Assistant: Nicole Dellolio & Jill 

Weninger 

G. Kelly Martin

Senior Vice President

Head of Global Debr Markets

Merrill Lynch

4 World Financial Center, 7th Floor

New York, NY 10080

Joseph Rosenberg

Senior Investment Strategist

Loews Corp.

667 Madison Avenue

New York, NY 10021-8087

Morgan Stark

Principal

Ramius Capital Group

Chrysler Center

666 Third Avenue, 26th Floor

New York, NY 10017

John Tormondsen

Goldman Sachs

85 Broad Street, 26th Floor

New York, NY 10004

Assistant: Patricia Mary Cole 

Mark B. Werner

Managing Director

JP Morgan Securities, Inc.

60 Wall Street

New York, NY 10260

Charles D. White

Managing Director

Wells Fargo

Mail Station S4753-040

3300 West Sahara Avenue

Las Vegas, NV 89102