MINUTES OF THE MEETING OF THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE BOND MARKET ASSOCIATION
May 5, 1998

The Committee convened at 9:15 a.m. at the Treasury Department for the portion of the
meeting that was open to the public. All members were present, except Mr. Francis. The
Federal Register announcement of the meeting and a list of Committee members are attached.

Deputy Assistant Secretary for Federal Finance Roger Anderson welcomed the
Committee and the public to the meeting. John Auten, Director, Office of Financial Analysis,
summarized the current state of the U.S. economy (statement attached). Jill Ouseley, Director,
Office of Market Finance, presented the chart show, which had been released to the public on
May 4, updating Treasury borrowing estimates and providing statistical information on recent
Treasury borrowing and market interest rates.

The public meeting ended at 9:45 a.m.

The Committee reconvened in closed session at the Madison Hotel at 11:55 a.m. All
members were present, except Mr. Francis. Deputy Assistant Secretary Anderson gave the
Committee its Charge, which is also attached.

The Committee began by considering the Treasury question regarding the treatment of
awards to foreign official accounts in auctions of notes and bonds. The members discussed the
potential risks and benefits of including awards to foreign official accounts in the announced
amount of Treasury auctions, as opposed to adding them to the announced amount. The
Committee voted 10 to 9 to recommend including‘awards to foreign official accounts in the
offered amount.

The Committee then turned to the questions in the Treasury’s Charge pertaining to
changing the new issue schedule for Treasury notes. An overarching theme of the discussion
emphasized the importance of the benchmark status and market liquidity of coupon issues and of
Treasury bills. Longer term proforma financing plans developed by a Committee member
(attached as Baseline A and Baseline B) were discussed, especially the plans displayed on pages


A125 and B125 in which 3-year notes were assumed to be discontinued and the frequency of 5-
year note issues was reduced to quarterly. The Committee voted unanimously to recommend
that the Treasury stop issuing 3-year notes after the May refunding, reduce to four the number
of new issues of 5-year notes each year, and include the 5-year notes in quarterly refundings.
The last monthly 5-year note would be in June.

Regarding buy-backs of Treasury securities in the market, the Committee consensus was
that buy-backs would not be useful to the Treasury at this time in light of structural changes that
the Committee proposes for Treasury auction sizes and frequencies. Moreover, technical’ Federal
budget issues may complicate implementation of buy-backs.

The Committee then discussed the financing plan for the April-June quarter, including the
May refunding. See the attached draft financing plans for the April-June quarter and the July-
September quarter, which were prepared by one of the members before the meeting. The
Committee consensus was that the Treasury should wait until the July-September quarter to
implement the changes in the borrowing structure discussed above. They voted 18 to 1 to
recommend a May refunding consisting of $10.0 billion of 3-year notes and $12.0 billion of 10-
year notes.

With regard to the July-September quarter, the Committee discussed the sizes of the 2-
and 5-year notes, in light of the changes in the offering schedule discussed above. The majority
(11) voted to recommend a that the August refunding consisting of $18 billion of 5-year notes,
$12 billion of 10-year notes, and $10 billion of 30-year bonds. A minority (5) would recommend
$17 billion of 5-year notes, $13 billion of 10-year notes, and $10 billion of 30-year bonds the
remaining members would recommend a $20 billion 5-year note.

Finally, the Committee discussed the next issue of inflation-indexed bonds. The
recommendation to reopen the April 30-year inflation-indexed bond was nearly unanimous (18
members in favor and one abstention).

The meeting adjourned at 2:15 p.m.

The Committee reconvened at the Madison Hotel at 5:40 p.m. All members were
present, except Mr. Francis. The Chairman presented the Committee report (copy attached) to
Assistant Secretary Gensler, Acting Assistant Secretary Hammond, and Deputy Assistant
Secretary Anderson. In reply to questions from Treasury officials, Committee members briefly


remarked on the likely market reaction, if the Treasury decides to stop issuing 3-year notes and
to issue 5-year notes in the quarterly refunding. There was also brief further discussion of the

treatment of awards to foreign official accounts in Treasury auctions.

The meeting adjourned at 6:05 p.m.

Jf K. Ouseley, Director
ffice of Market Finance
May 5, 1998

Certified by:
NY Cina? de Bef View Charrmnn

Stephen Thieke, Chairman
Treasury Borrowing Advisory Committee
of The Bond Market Association

May 6, 1998

for Srephen Thieke , Charman