MINUTES OF THE MEETING OF THE

TREASURY BORROWING ADVISORY COMMITTEE

OF THE BOND MARKET ASSOCIATION

August 1, 2000

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. Axilrod, 

Kalaris, Martin, and Stark. The Federal Register announcement of the meeting and a list of 

Committee members are attached. 

John Auten, Director, Office of Macroeconomic Analysis, summarized the current state 

of the U.S. economy (statement attached). Paul Malvey, Director, Office of Market Finance, 

presented the chart show, updating Treasury borrowing estimates and historical debt and 

interest rate statistics. 

The public meeting ended at 9:20 a.m. 

The Committee reconvened in closed session at the Madison Hotel at 11:40 a.m. All 

members were present except Messrs. Axilrod, Kalaris, Martin, and Stark. Assistant Secretary 

for Financial Markets, Lee Sachs, gave the Committee its Charge, which is also attached. 

The Committee began by discussing the question regarding how the Treasury might 

adjust the buyback program going forward. The Committee noted that repurchase operations 

had become almost a Anon-event@ to the market. There were little, if any, market reactions 

when Treasury conducted buyback operations, even when varying operation sizes and maturity 

ranges. 

Regarding participation in buyback operations, Committee members cited low customer 

involvement and virtually no foreign participation. Foreign accounts were viewed as Abuy and 

hold@ and generally not considered likely to participate in debt buybacks. Committee members 

also noted that buyback cover ratios were still well within an acceptable range, although they 

have, as one would expect, trended down over the first ten operations. One committee member 

cited customer concern regarding operation turnaround times as a reason for poor customer 

participation and suggested that smaller operations with fewer securities would be more 

desirable. 

Regarding buybacks overall, the Committee reiterated their previous recommendations 

that the Treasury continue the practice of announcing quarterly buyback-target amounts and 

adhere to a regular, predictable, and fairly frequent buyback schedule. Treasury should 

continue with the one-day announcement period. The members stated that despite little foreign 

participation, a one-day announcement period remained desirable in order to allow potential 

overseas investors to participate. The Committee felt that smaller operation sizes, as measured 

by number of securities, generally resulted in quicker response times and may encourage 

customer participation. There was also a consensus among Committee members that at some 

point in the future, Treasury should consider repurchasing securities in maturity sectors other 

than the 15- to 25-year range. This was considered necessary because as the buyback program 
2 

progressed, liquidity would eventually diminish in particular sectors effecting both the volume 

and prices of offers. 

Next, the Committee turned its attention to the question in the Charge regarding other 

adjustments Treasury may eventually need to make to the current financing schedule given the 

continuing projected improvement in the fiscal situation. The Committee began by noting that 

surplus projections had succeeded in raising market awareness of Treasury=s near-term debt 

management plans, particularly concerning long-term debt issuance. Members cited significant 

uncertainty surrounding the continued issuance of long-term debt, with some investors believing 

that long-term issuance will soon disappear, while other investors expect Treasury to maintain 

risk-free benchmarks for policy reasons. 

The Committee suggested that Treasury address this uncertainty. They recommended 

that the Treasury acknowledge the magnitude of the current projections and the longer-term 

debt-management implications of these projections should they be realized. Second, the 

Treasury should indicate that even if current projections are realized, significant changes to 

auction cycles over the near term are unnecessary. Third, no decision has been made 

concerning the elimination of any particular issue, but the topic is constantly under review. 

Finally, the Treasury should remind investors that Treasury consistently gives advance notice 

prior to changing an auction cycle or the elimination of any particular issue. 

The Committee next addressed the question in the Charge regarding making 5-year 

notes issued prior to September 1997 eligible for stripping. The Committee unanimously 

agreed on the desirability of this action, noting that the 0- to 5-year maturity sector in the 

STRIPS market was expensive and somewhat illiquid. Allowing old 5-year notes to be eligible 

for stripping would facilitate reconstitutions in the short end of the curve and enhance overall 

market liquidity. As a means of further enhancing liquidity, the Committee also recommended 

that the issue of fungibility of coupon and principal STRIPs be studied. 

Regarding the quarterly refunding, by a unanimous vote, the Committee recommended a 

reopening of the 6-3/4 percent 5-year notes of 5/15/05 in an amount of $10 billion. Also by 

unanimous vote, the Committee recommended issuing $10 billion of a new 10-year note. 

Finally, the Committee, in total, recommend a reopening of the 6-1/4 percent 30-year bonds of 

5/15/30 in an amount of $5 billion. Looking at the remainder of the July-September quarter, 

the Committee recommended that 2-year notes remain at $10 billion for August and September, 

and that weekly bills be maintained at the $18 billion level. 

Looking ahead to the October-December quarter, the Committee recommended that 

Treasury issue $12 billion of new 5-year notes and $8 billion of reopened 10-year notes at the 

November quarterly refunding. They recommended that 2-year note sizes remain constant at 

$10 billion and that the October 30-year inflation indexed security be a $6 billion issue size. 

Weekly bills would be increased slightly to $19 billion for the quarter. 

The meeting adjourned at 12:32 p.m. 
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The Committee reconvened at the Madison Hotel at 6:00 p.m. All members were 

present except Messrs. Axilrod, Kalaris, Martin, and Stark. The Chairman presented the 

Committee report to Undersecretary Gensler, Assistant Secretary Sachs, 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

August 1, 2000

Certified by: 

Kenneth M. deRegt, Chairman

Treasury Borrowing Advisory Committee

of The Bond Market Association

August 1, 2000