MINUTES OF THE MEETING OF THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE PUBLIC SECURITIES ASSOCIATION
. February 4 and 5, 1997

February 4

The Committee convened at 11:30 a.m. at the Treasury
Department for the portion of the meeting that was open to the
public. All members were present, except Ms. Kenworthy and
Messrs. DeRegt, Kessenich, Lodge, Lyski, Napoli, and Wardlaw.
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. Deputy Assistant
Secretary Anderson presented the chart show, which had been
released to the public on February 3, updating Treasury borrowing
estimates and providing.statistical information on recent
Treasury borrowing and market interest rates.

The public meeting ended at 11:55 a.m.
Eebruary refunding

The Committee reconvened in closed session at the Madison
Hotel at 2:15 p.m. The members were present who had attended the

public briefing. Deputy Assistant Secretary Anderson gave the
Committee its Charge, which is also attached.

The Committee began by considering the attached proforma
financing plan for the January-March quarter that had been
prepared in advance by one of the members, using the market
borrowing estimates that were released by the Treasury on
February 3. The committee voted to recommend that the Treasury
issue $17.75 billion 3-year notes, $12.0 billion 10-year notes,
and $10.0 billion 30-year bonds. This recommendation represents
a $0.75 billion reduction in the 3-year note size and a $2.0
billion increase in the 10-year note size relative to the
November refunding. In the Committee’s view, a slightly larger
10-year note may add needed liquidity to this sector since an
additional conventional 10-year note will not be offered until
May. The reduction in the size of the 3-year note offering would
partially offset the increase in the 10-year offering and the new
cash raised by the recent 10-year inflation-indexed note auction.


2

The Committee also voted to recommend that Treasury reopen
the November 30-year bond to add to the strippable supply of the
security. Although the Committee did not see a need to issue a
cash management bill (CMB) as part of the February refunding, it
does foresee a need for a CMB in early March, with a maturity
shortly after the April 15 tax date.

The Committee consensus was that the current sizes of the 2-
and 5-year note auctions, as well as the recommended sizes of the
refunding issues, should be maintained in the April-June period.
However, taking into account the April offering of inflation-
indexed securities, and due to the anticipated net paydown in the
April-June period, the Treasury should maintain flexibility in
the size of coupon issues, with modest downward adjustments
possible.

Lé-basi . . idding £ iu

The Committee saw no disadvantages to the Treasury requiring
auction bidding in minimum increments of one-half basis point for
Treasury bills and voted unanimously to recommend that Treasury
implement the proposal. The Committee believes that half-basis
point bidding will promote more efficient and aggressive bidding
and is likely to lead to marginally higher auction revenues for
the Treasury. In addition, the Committee believes that market
participants would need very little lead time to begin half-basis
point auction bidding since most market participants already
trade the securities in minimum increments of one-half or even
one-quarter basis points.

1 was ing threshold

The relatively small amount of Treasury bills available for
the public in certain recent weekly bill auctions has decreased
the Treasury’s ability to enforce the 35 percent bidding rule
when bidders’ net long positions”are less than the $2 billion
reporting threshold. The Committee voted to recommend that the
Treasury reduce the net long position reporting threshold to $1
billion for Treasury bill auctions, while maintaining the $2
billion threshold for note and bond auctions.

The meeting adjourned at 3:45 p.m.


February 5

The Committee reconvened at 8:30 a.m. at the Treasury in
closed session. All members were present, except Ms. Kenworthy
and Messrs. DeRegt, Kessenich, Lodge, Lyski, Napoli, Pike, and
Wardlaw. The Chairman presented the Committee report (copy
attached) to Under Secretary Hawke and Deputy Assistant Secretary
Anderson. A brief discussion ensued concerning the net long
position reporting threshold.

The meeting adjourned at 8:50 a.m.

ae

Sean T. Flynn ,

Financial Economist
Office of Market Finance
Domestic Finance
February 5, 1997

Attachments
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Certified by: Ka iS be. Cdn IC )
Richard Kelly, Chairman
Treasury Borrowing Advisory Committee
of the Public Securities Association
February 5, 1997