MINUTES OF THE MEETING OF THE 

TREASURY BORROWING ADVISORY COMMITTEE 

OF THE PUBLIC SECURITIES ASSOCIATION 

AUGUST 2 AND 3, 1994 

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 20 members were present. 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. 

Assistant Secretary for Economic Policy Alicia Munnell gave a 

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

Director, office of Market Finance, presented 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 August 1, 1994. 

The public meeting ended at 12:18 p.m. 

Ausust refundinq 

The Committee reconvened in closed session at the Madison 

Hotel at 2:00 p.m. All members were present. Deputy Assistant 

Secretary Bradbury gave the Committee its Charge, which is also 

attached. The Committee first discussed the size of the August 

midquarter refunding within the context of the Treasury's 

estimate of a $45 billion net market borrowing requirement during 

the July-September 1994 quarter. 

The Committee discussed recommending that the August 

refunding consist of $17 to $17-112 billion of 3-year notes, $12 

billion of 10-year notes, and $11 to $11-112 billion of 30-year 

bonds. A majority of 14 members voted to recommend a $40-112 

billion August refunding consisting of $17 billion of 3-year 

notes, $12 billion of 10-year notes, and $11-112 billion of 30- 

year bonds. An increase in the bond was preferred to an increase 

in the 3-year note. 

The Committee voted unanimously to reopen the 7-114% 

Treasury notes of May 15, 2004. Members believed that reopening 

would enhance market liquidity in the 10-year maturity area. 

The Committee then considered the maturity date for the 

long-term bond. By a majority of 16 to 4, the Committee voted to 

recommend a bond that would have interest payments in May and 

November, as opposed to February and August. The Committee then 
voted by 12 ayes, 2 noes, and 6 abstentions, to recommend issuing 

a 30-114 bond, maturing on November 15, 2024. The other option 

presented was a 29-314 year bond maturing on May 15, 2024. The 

majority believed that the Treasury would benefit from issuing 

the 30-114 year bond, because it would be more attractive for 

stripping and potentially it could be reopened in the February 

refunding. 

By consensus, the Committee agreed to adopt the draft 

financing plan for the rest of the July-September quarter and for 

October-December period displayed in a draft proforma, as 

modified. One of the modifications would be to split the 

estimated cash management bill need in the rest of the JulySeptember period between bills issued on August 15 and on 

September 2, both to mature on September 22. The draft proforma 

is also attached. Also by consensus, the Committee agreed to 

recommend cash balances of $40 billion on September 30 and $30 

billion on December 31. 

Sinale-s rice auction 

Paul Malvey, Senior Economist, Office of Market Finance, 

U.S. Treasury, explained the charts that were attached to the 

Committeefs Charge. The charts display different aspects of the 

results to date of single-price auctions of 2- and 5-year notes. 

The Committee's sense was that the 2- and 5-year notes 

appear to be more widely distributed in the single-price auction 

than securities that the Treasury is selling in the multipleprice auctions. This belief is based on experience, as well as 

the Treasury data, which show a high degree of variability in 

auction results. The single-price auction appears to the members 

to be neutral with respect to Treasury borrowing costs. Members 

observed, however, that the single-price auction has not been 

tested in a rising yield environment. The Committee voted by 17 

to 3 to recommend extending the time period for the single-price 

auction experiment and expanding it to include 10-year notes. 

Three-decimal yield bidding 

The final item in the Charge was to consider whether the 

Treasury should adopt 3-decimal bidding in auctions of notes and 

bonds. The Committeefs recommendation to proceed with 3-decimal 

yield bidding was unanimous. The members believed that bidding 

in tenth of basis point, rather than full basis point, yield 

increments would bring more participants into auctions, 

particularly of longer term securities. Also, 3-decimal yield 

bidding would conform Treasury auctions with market practice in 

which securities are traded in 3-decimal yield increments. 

The meeting adjourned at 4:30 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. McKnew. The Chairman presented the Committee report 

(copy attached) to Under Secretary for Domestic Finance Frank N. 

Newman and Deputy Assistant Secretary Bradbury. 

In response to a question, the Committee expanded upon the 

recommendation of a 30-1/4 year bond. Members believed that it 

is appropriate for the Treasury to increase the long-term bond in 

the August refunding, after having left the size unchanged at $11 

billion since August 1993. Also, the Treasury issues a large 

volume of securities in the short intermediate maturity area. 

Banks, which are the natural constituency for short-term notes, 

have been increasing commercial lending activity recently and 

decreasing their purchases of Government securities. 

Committee members also responded to questions regarding 

extending the single-price auction experiment. Expanding upon 

the discussion at the meeting on August 2, members suggested that 

experimenting with 10-year note auctions would be beneficial, 

because the types of bidders that participate in 10-year auctions 

are somewhat different from bidders in 2- and 5-year note 

auctions. Members did not believe that a similar benefit would 

be gained from experimenting with bill auctions. 

The meeting adjourned at 9:30 a.m. 

Ouseley, ~id&or 

of Market Finance 

Domestic Finance 

August 3, 1994 

Attachments 

Certified by: 46- 

Step en C. Francis, Chairman 

Treasury Borrowing Advisory Committee 

of the Public Securities Association 

August 3, 1994