January 27, 1982 

i,c, Secretary: 

-4s you are well aware, after a late 1981 rally of 

substantial proportions, the f !.xed income markets !lave in 

recent weeks fallen dramatically, The twin facts of an 

economy in recession and suhstantid iicproveinent in the 

(- U -r- IT .,~t ~, rate o; infl.ation have been overridden in the main 

by the longer range fears associated with burgeoning Federal 

deficits and the near term fact of outsized growth in 

money supply statistics an8 at least 2 perceived tightening 

response by the Federal 2eserve. At present, the outlook 

for the market does not appear propitious, hut as it often 

has in t3e past, market psychology can change radically and 

quickly,, 

T'ki Cornmit,ki?e rccilmmeiiiations are offere6 in tbte contiixt 

of expectations that mrkets will continue to he iliglily volatile 

1nc3 capricious and that tk,e ways and means of Treasury finance 

will hc a critical component ot market trends in months to cone, 

While we do not wish to exude pessimism, we do not see easy 

tirms ahead for tbse who need to borrow money, 

In its deliberati~ns, the Cornmittre first considered tile 

pros and cons of recommending a fixed price subscription type 

iif rering in Lhis refunding' The conclusion reached by a vote 

oL 18 to 5 was that a fixed price subscription orfering was 

neither advisable nor nreiiecl at this time., P large majority 

of the Com;ri.ttee feel that current debt narlagement techniqut?~ 

arc adequate to raise needed funds during at least the next 

two quarters, It is our feeling tf.at the Eixed price 

subscription offering is an expensive alternative to current 

~iuctions and, therefore, should be reserved for times of 

particular stress in tiit: markets and where very larqe amounts 

of iunds might he raised in an effort to get a substantia! 

head start '311 a financinn proqram, The Committee 1;ilieves 

that a sui,st:antial concession to existing mrket rates would 

he recluired to sell a large (SIO bil.1.lion or sc: issue 
of 5-year notes -- estimates of this cost ranged from 50 to 

100 basis p0int.s in yield. The Committee also feels, however, 

that the fi-xed. price subscription offeriny remains a part 

of Treasury's fundi,ng arsenal to be used at some future tirw 

when conditions appear to favor its success or require its 

use. Perhaps the most important market prerequisite to its 

uRe is a steep upward sloping yield curve which enables the 

investor to acquire suhstantial1.y improved returns against 

alterna"i.vo shorter term investments, it shoul,i! also be 

nentinned that rccewt volatile markets discourage investor 

lengthening and also presentsubstantial. mechanicai problems 

i.n prici.nq and offering a fixed price subscription issue. 

3uriny the extended discussion surrounding the foregoing 

topic, it became aptmrent that a thorouqh review by this 

Coxrnittee of present dehtaatiagenent proce(2ures and techniques 

may we1 I. be in order. We would sugcjest a special meeting rc: 

he held during the next month or two at which time we would 

review an agenda of items emanating frm the confluence of 

vast1.y changed Treasury fundi.ng needs, nodif ied Federal 

Reserve operating techniques, volatile market conditions and 

altered investor needs and preferencess We will work. with 

your staff in evaluati.ng and planning such a meetingIn structirin~j its refunding reconmendations, the 

Cornittee has been {,juidei? by what i,t vi%s as a need to take 

greater advantage of the market focus at.tendant ko refurrdinq 

periods, As we have stated before, we feel that amounts of 

new money raised in eonjuction with major refundings shoul61 5c 

increased substantially, Accordingly, and with the added 

emphasis of a ionanimous vote, the Committee recommends a $12 

billinn refunding package as foliows: 

$5.0 billion 3 yr. Notes due 2/15/35 

2.5 biili,on 10 yr. Not.es (?ue 2/15/12 

2-5 billion 30 yr- Eonds due 2/11,/20:2 

or preferably, 

a $2-5 billion reopening of the existino issue of bonds (due 

l.5 1.1.The ::o!ntuittce continues to f eel that, where 

passihle, si:iaLl$?r issues sliaitld be reopetied tr, crcatc- issues 

;)C morf triidr?able size. he reiiindiny securi.ties m1.11d ibe sois 

at a!ic?rioil in the iisual or3er on Febrir;ry 2, 3 and 4, 

I. ri:fun:?inrj packaqe of Sir: hii.li3n wi1.l produce !lev? 

cant1 of $5-7 biliion which when viewor1 in thc context of 

Phe iurt1:ec inet?;!:~ *~ft-i:c: qu;iiti:r- is "lii.Ll1.i iiesic-able anti' agaiii, 

ill t!ic opinion of the Coroinittec, an nmoutlt tliiit can he? 
of 5-year notes -- estimates of this cost ranged from SO ,to 

100 basis points in yield. The Committee aLso feels, however, 

that the fixed price subscription offering remains a part 

of Treasury's funding arsenal to be used at some future time 

when conditions appear to favor its success or require its 

use. Perhaps the most important market prerequisite to its 

use is a steep upward sloping yield curve which enables the 

investor to acquire substantially improved returns against 

alternative shorter term investments. It should also be 

mentioned that recent volatile markets discourage investor 

lengthening and also present sustantial mechanical problems 

in pricing and offering a fixed price subscription issue. 

During the extended discussion surrounding the foregoing 

topic, it became apparent that a thorough review by this 

Committee of present debt management procedures and techniques 

may well he in order, We would suggest a special meeting to 

he held during the next month or two at which time we would 

review an agenda of items emanating from the confluence of' 

vastly changed Treasury funding needs, modified Federal 

Reserve operating techniques, volati1.e market conditions and 

altered investor needs and preferences. We will work with 

your stafE in evaluating and planning such a meeting, 

In structuring its refunding recommendations, the 

Conrni.tte@ has heen guided by what it views as a need to take 

greater advantage of the market focus attendant to refunding 

periods- As we have stated before, we feel that amounts of 

new money raised in conjuction with major refundings should he 

increased substantially. Accordingly, and with the added 

emphasis of a unanimous vote, the Committee recommends a $10 

billion refunding package as follows: 

$5.0 billion 3 yr. Wotes Clue 2/15/85 

2.5 hill?on 10 yr. Notes due 2/15/92 

2.5 brillon 30 yr. Bonds due 2/15/2012 

or preferably, 

a $2*5 billion reopening of the existing issue of bonds due 

11/15/ZOlI. The Committee continues to feel that, wl~ere 

possibl.e, smaller issues should be reopened to create issues 

of more tradeable size* The refuntfinq securities would be sold 

a+ auction Lc the usual order on Fe'bruar=* 2, 3 and 4; 

A refunding package of $10 billion will produce new 

cash of $5,7 bilLion which +!hen viewed in the context. of 

the further needs of the quarter is highly desirable and again, 

in the opinion oE the Coiiimittee, an amount that can be 
accommodated by the market. Appended to this report is a two 

page schedule detailing our specific recommendations for the 

balance of the quarter and - summary recommendations for the 

second calendar quarter. 

These schedules contempLate a $12 billion cash balance 

at the end of the first quarter and a cash balance 

approximating $18 bi?.lion at June 30. 'fie Committee feels 

that a balance in the neighborhood of $20 billion or so 

would be desirable at mid-year, but with only sketchy fietail 

of second quarter revenues and expeditures, cannot be highly 

specific in financing recommendations. The Committee's detailed 

financing plans would raise $43 billion in the current quarter 

and $14 billion in new cash in the second calendar quarter. 

The proposal for the current quarterly financing (excluding 

cash management hills) would result in approximately a l/3 

proportion of bill financinq to the total, A sumrnary of 

overall first half year financing would produce approximately 

a 30% proportion of bill financing- We would view these 

proportions as reaching the outer limits of the Treasury bill 

component, As we have stated on numerous occasions, we feel 

that debt management should consistently strive to promote 

an upward sloping yield curve as well as appeal to relatively 

permanent holders of its securities. 

The detailed financing sckedules appended also suggest 

a continuation of current note and bond cycles and delineate 

the Committee's views as to the maximum amount that might 

be raised currently ixtilizing these established cycles. The 

Committee specifically considered the alternative of establishing 

more frequent issuance of 3-, 4-, 5- and 7-year notes versus 

increasing the size of already establ.ished financing patterns. 

The view is substantially held that frequency of entry should 

he minimized -- and conversely the amounts of existing estah1i.shed 

issues maximized. The Coomitkee is comfortable that present 

debt management techniques and established note and bond 

cycles are adequate to meet the needs of the Treasury over 

the next two quarters. As we have previous1.y indicated, however, 

we believe we should hold a special meeting sometime in the 

next few months to review Treasury financing recommendations 

in liqht of chanyLng market conditions and financing requirements. 

As this report concludes, it is realized that we have 

no",beeii completely responsive to the Committee charge An 

attempt Lo respond to a request for an evaluation uf the 

35% bidding award limit revealed a host of Conunittee views, 

far transcending this narrow question an? suggesting the 
Committee might we1.l offer a critique and suggestians going 

to many of the mechanical fundamentals surrounding the total 

process of issuing Treasury securities. We suggest that 

this additional subject be added to the agenda of the previoasly 

proposed special meeting. 

We stand ready to respond co your questions. 

Respect lvel 
Issue Analysls of 1st Quarter New Money Pinanclng Remaining to be wne* 

(S Rllljons) 
Sumnary of Fsrst Quarter New Money Opratrons 

($ Rlllrons) 

That already rarsed or annciur?ced* : 

Rcquiar Weekly Treasury 4ill $ 4-6 

One Year Treasury Bi.ll (1/28) -4 

2-Year Note (includes $,3 bi.ll.ion Foreign add-on) 1,6 

?-Year Note (includes S,3 billion icreign add-on) 3*5 

20-Year 4ionc3 - 1.+8 

$12*2 

*Incl.udes a net unchancjed psitiion in cash xinaganent );ills resulting iran 

the 1/5/82 issuance oE $3-0 billion in bills due 6/17/32 and the 1/21/82 

rcde~nption of $3-0 bil1iun in &-cia:/ bills originally issried 12/7/81. 

Total, raised in 3uarter: S43-1 

Kc-quiar Weekly 'ki:i,swy Rills 

One Year Treas~iry Bills 

2-, 4-, 5-, and 

20-Year bnd 

Kefundirq 

7-Year Notes l2*9 

2 -0 

Net Cash Raisi?l 

Net Cash ii;ri.sed 

ir. Quarter $13.9 

I'lsstming an &i?ril-May cash deficit $7-5 hillinn and March 31 balance of 

$l2,0 bkliio?, raisin? 513.9 billion in April-May leaves a June 30 closiq 

balance of $18.4 hillion, 
REPORT TO THE SECRETARY OF THE TREASURY 

FROM THE U,S. GOVERNMENT AND FEDERAL AGENCIES 

SECURITIES COMMITTEE OF THE 

PUBLIC SECURITIES ASSOCIATIOM 

April 28, 1982 

Mr. Secretary: 

We meet at a super critical time in the history of Treasury 

debt management, After having been buffeted by two and one-half 

years of deb~litatingly high interest rates and outsized rates 

of inflation, the economy has been brought to heel, This cost 

is finally producing the benefit of a substantially slower pace 

of inflation as evidenced by producer and consumer price indexes 

as well as in the GNP deflator, Interest rates have fallen but 

many observers would say that the risk premiums in the rate 

structure are far too high in relation to current economic 

developments. 

These risk premiums are related to three factors: skepticism 

as to the permanence of the gains against inflation, expected 

market pressures as mammoth Federal deficits are funded in future 

quarters and the past history of violent, unpredictable fluctuations 

in rates. 

Of these factors, it is probably fairest to say that the 

anticipated size of future Federal deficits now acts as the 

primary cause of concern to market investors and professionals, 

Markets over the last few months have gained increasing confidence 

in the intent of Federal Reserve policy. It is bel~eved that 

the Fed will "hang-tough" in its battle with inflation, This 

has resulted in a greater acceptance of a volatile rate environment 

as the Fed occasionally must move against spurts in the path of 

money growth, Markets, because they believe they know the 

boundaries of Federal Reserve policyr appear to be willing to 

look through these mad~ustment periods," hopefully to carry out 

a smoother pattern of interest rates in the intermediate and 

longer sectors of the market, Against these improved market 

attitudes, however, looms the now greater uncertainty of aberrant 

Federal deficits, how big they will be, how they will be financed, 

and what impact they will have on inflation and the economy, 
This Committee has focused on the initial questions of how 

these expected deficits may be financed so as to have the least 

negative impact on the economy and inflation, as well as on the 

market and interest rates, Just as markets are exhibiting a 

greater ability to deal with Federal Reserve policy, because 

the rules are known, Treasury must establish equal credibility 

by assuring markets that it has a viable financing plan to fund 

whatever needs maybe required in future quarters, 

The Committee has projected a pro forma financing schedule 

for the current and subsequent three quarters against current 

estimates of Treasury financing needs, The conclusion is apparent. 

Past financing patterns are not adequate to produce the needed 

funds, unless a dangerous reliance is placed on bill financing, 

This conclusion persists even when traditional offerings are 

estimated at their maximum srze. 

This report, therefore, suggests that one or two new cycles 

(depending on actual needs) be introduced and that financing 

patterns be changed to provide periods of concentration of 

borrowings alternating with periods designed to allow issues 

to be distributed and the market to consolidate. Past principles 

of regularity and predictability of offerings, tho use of the 

auction techniques, the striving for a positively sloped yield 

curve and the mix of no more than 25 - 30% in bills are only 

reinforced in today" environment, Informing the markets of 

future plans and providing assurances that the lob can be done 

in an orderly way are paramount ingredients as you move into 

the period ahead, 

Goals for the Current Quarter 

The Committee feels strongly that the current quarter, with 

its relatively small requirement for raisrng new money, be used 

to anticipate the record cash needs of the third calendar quarter, 

Accordlngy, we recommend a cash balance on June 30 of $18 billion, 

Reaching this level requires net market borrowing of $15.5 billion 

during the quarter. Of this amount, $5 billion has already been 

raised, leaving a balance of $10-5 billlon to do, 

Considering the lack of long bond authority, the Committee 

recommends a two-way offering to replace the $6.4 billion of 

maturing May 15 securltres, We believe the total size of thls 

offerlng should be $9.5 billion, which would result in raising 

new cash of $3.1 billion, We recommend that the Treasury sell 

at auction: 

$5-5 billion of a 3-year note maturing on 

May 15, 1905 and 

$4,0 billion of a 10-year note maturing on 

May 15, 1992. 
These lssues would be offered on Tuesday, May 4, and Wednesdayi 

May 5, respect~vely, The greater than normal size of the 10- 

year issue we believe is justified by the absence of a long 

bond offering and should be well received by the market, The 

Committee approved the above refunding recommendation by a 

unanimous vote. 

Appended to this report is a schedule showing our 

recommendation for the balance of the quarter, It contemplates 

raising the balance of new money of $7,4 billion by additions 

to the normal schedule of coupon and 52-week bill offerings, 

Financing in the Period Ahead 

As we enter the third quarter of 1982, the Treasury will 

beg~n to fund what now appear to be three successive quarters 

of record needs for market borrowing, In an effort to gain 

perspective and knowledge necessary to formulate our recommendations, we have estimated these borrowing needs for the 

next three quarters and devised a funding plan for each, 

These estimates and plans are attached for your information, 

With the exception of the third calendar quarter, our deficit 

estimates are "worst case" estimates and do not take into 

consideration any actjon that may be forthcoming to pare 

down the Treasury's borrowing needs. 

In reviewing these needs, it qu~ckly becomes obvious (even 

though these needs may be reduced to some degree) that new 

cycles of coupon issues must be introduced and the existing 

size of traditional offerings increased, 

In formulating its recommendations to the Treasury, the 

Committee has long been guided by the principle that as 

borrowing needs expand, traditional issues should first be 

expanded to maximum size and, secondly, be expanded into greater 

frequency of offering, Only after this process is completed 

should new maturities or concepts be introduced, The essence 

of the Committee's recommendation is to phase in a monthly 

cycle of four-year notes and, as required, a monthly cycle of 

seven-year notes, We further recommend that all coupon offerings 

be scheduled so as to provide alternate weeks of financing, 

thereby provrding periods in which issues may be distributed 

and markets may eonsol~date, A suggested schedule is attached, 

The above recommendation was adopted unanimously with the caveat 

that the 3- or 5-year note might be considered for extension 

into cycles instead of the 4- or 7-year, The vast majority, 

however, felt the 4- and 7-year notes were most appropriate, 

best fitting the alternate weeks strategy and would offer 

greater debt extension to the Treasury. 
In attempting to resolve the dilemma between expanding 

the size of traditionally offered issues and the introduction 

of new cycles, the Committee attempted to determine what might 

be the maximum range of size for each of the currently offered 

coupon issues, These ranges are submitted below as current 

guidelines under current market and financing conditions, It 

should be stressed that the Committee feels that in general, 

the size of individual issues should and may be expected to 

increase over time as markets expand. 

Haturity of Aproximate Maximum 

Issue Size 

(billion) 

2 yrs., 

3 yrs, 

4 yrs. 

5 yrs, 

7 yrs, * 10 yrs, 

20 yrs, ** long bonds 

* Under normal refunding conditions when long bonds are offered. 

** Half of the Committee favored the lower range -- half the 

higher range, 

Zt should be noted that the Committee" expanded funding plan 

utilizes these maximum limits and still requires the establishment 

of the four- and seven-year cycles, 

It is recognized that our funding plans contemplate worst 

case market borrowings, You will also note, however, that these 

plans also contemplate a use of bill financing that transcends 

our recommended guidelines of 25 - 30% in new money raised in 

the bill market, We believe that should cash needs be reduced 

the bulk of this reduction should be made in the bill sector, 

Financing the July - September Cash Needs 

In offering its plan for the third calendar quarter, the 

Commrttee recommends a September 30 cash balance of $20 billion, 

A balance of this magnitude 1s desirable as the last quarter of 

1982 will lit apears at this time) require a substantially greater 

level of market borrowing than the third quarter, 

A September 30 cash balance of $20 billion will require 

approximately $40 billion of net new financing in the third 

quarter, As presented in the attached funding plan, the Committee 

recommends pushing traditional offer~ngs to maximum size and 
introducing the aforementioned four-year note cycle, If the 

recommendation is followed, approximately 708 of new money will 

be raised in coupons and 30% in bills, We would view bills as the 

appropriate instruments to be adjusted to changes in cash requirements, 

The Committee also discussed a variety of innovations in 

both the structure and offering of Treasury issues. It was 

concluded that none of these was appropriate for use at this 

time, The Committee will continue to monitor the inventory of 

innovation and new ideas wlth regard to Treasury needs. 

The Committee would also like to bring to the Secretary's 

attention the proliferation of the practice of coupon stripping 

of Treasury securities, Without passing judgment on the practice, 

we would submit that it is becoming more prevalent in the market 

and will probably continue to grow if not curtailed by regulation, 

This Committee is honored to be asked ta help guide Treasury 

financsng policies during these critical times, 

We will be pleased to answer your questions, 

Respectively submitted, 

David G, Taylor 

Chairman 
ESTIMATED TREASURY BORROWINGS 

(In b~llions of dollars) 

Marketable Balance at 

1982 Borrowing End of Period 

kprll - Junc 15.5 

July - September 40 -0 

October - Decembcr 60.0 

January - March 5L0 

KOte: These estrsnates as=di!r! the following: 

FY 1982 

Budget aef lest 101.5 

Off-Budget Def lcl t 20-0 

These estimates are based on current loqislatlon, 
f the Treasury expande the quarterly @-year note cycle to monthly basis, 

and the 7-year to a twk per qwrter basts, we would encou ge eonsideration 

of an offering sequence af cycle 

UARIER WEEK 

2nd Month Mid-mont 

Month-end 

3rd Month 

We believe that there ould be some merit in concentrating Treasury coupon 

offerings into shorter ime intervals rather han, for example, the weekly 

spacing of 2,4, 7 and 20-year securities. concentration of offerings in 

mid-quarterly refundings has been well received by spwulators and investors. 

Actually, mid-quarterly refundings tend to generate greater Investor focus 

than is the case for other regular note nd bond offerings. The offering 

cycle shown above would reduce the periods when the Treasury markets notes 

and bonds. While the payment dates on the fifteenth of the month for 5, 7 

snd 20-year securities is not ideal to meet the rly month outlays, 

more frequent cash management bills [or note Is) would solve 

his problem. 
TREASURY NEW CASH RAISED 

THROUGH MARKETABLE DEBT 

(Dollars in Billions) 

APRIL - JUNE 1982 

Est, Treasury market borrow~ny requirement - $15.5 billron 

- Mew Cash Total 

Amount To Re mount Total 

---- COUPON ISSUES --- Maturing Completed - -- Done Offered New Cash 

BILLS 

52-week lL,3 1.0 2.4 16.7 4.4 

Weekly 124-8 -,G 1,5# 125.7 -9 

Cash Management 5-0 -2-0 -3.0 -5.0 

Total Bills -1 *G -9 .3 

Grad Total 2-9 10.4 15,5 

----- 

# Assumes no change in rollovers during May and that each of the 

four June maturities will be increased by about $400 million 

per week to a weekly level of close to Sl0 billion. 
TREASURY NEW CASH RAISED 

THROUGH MARKETABLE DEBT 

(Dollars in Bsllions) 

JULY - SEPTEMBER 1982 

Est, Treasury market borrowing requirement - $40 billion 

AMOUNT AMOUNT NEW 

CURRENT CYCLES MATURING OFFERED - CASH 

2-yr. (b5,5 bll, eb,) $13.4 $l6,5 $3,1 

2,4 4 ,0 1-55 

3.5 3.5 

3.5 3.5 

2,0 2,o 

4-yr. 

5-yr, 

7-yr, 

20-yr, 

Refunding 

NEI? CYCLE 

4-yr, (3-5 bll 

BILLS 

52-week (6,O bil. ea.) 13*3 18-0 

Total Market borrowrng 
TREASURY NEW CASH RAISED 

THROUGH MARKETABLE DEBT 

(Dollars in Billions) 

QCTOBER-DECEMBER 1982 

Est . Treasury market borrowing requirement - $60 billion 

CURRENT CYCLES 

2-yr. (6.0 bil. ea.) 

4-yr. 

S-yr. 

7-yr. 

90-yr. 

Refunding 

- NEW CYCLES 

&yr. (4.0 btl. ea.) 

- BILLS 

57-week (6.5 bil. ea.) 

Weekly (11.7 hil. ea.) 

TOTAL Market borrowing 

AMOUNT AMOUNT NEW 

MATURING OFFERED CASH -- % 

$60.0 roo. 0% 
TREASURY NEW CASH RAISED 

THROUGH MARKE'I-ABLE DEBT 

(Dollars in Billions] 

JANUARY-MARCH 1983 

Est. Treasury market borrowing requirement - $55 billion 

CURRENT CYCLES 

AklOUNT AMOUNT NEW 

MATURING OFFERED -- a CASH -- 0 

2-yr. (6.0 bil. ea.) $1 4.4 $1 8.0 $3.6 

4-yr 2.9 4.5 I. 6 

5-yr. 4.0 4.0 

7-yr, 3.5 3.5 

20-yr. 2.25 2.25 

Refunding 12.5 - 6.7 

21.7 

NEVJ CYCLES 

4-yr. (4.0 bil. ea.) 

- B l LLS 

52-week (6. 5 bil. ea.) 15.9 

Weekly (12. 7 bil. ea.) 147.0 

TOTAL Market borrowing 
REPORT TO THE SECRETARY OF THE TREASURY 

FROH THE U.S, GOVERNMENT AND FEDERAL AGENCIES 

SECURITIES COMMITTEE~OF THE 

PUBLIC SECURITIES ASSOCIATION 

July 20, 1982 

Mr, Secretary: 

Since our Last meeting we have seen interest rates decline 

in May, only to have the improvement largely reversed in June 

and then change directions again in the middle of July, resulting 

in overall declines in some short-term rates of 250 to 300 basis 

points, 

The rate declines in May were related to a deyree of optimism 

regarding the possibilrty of a favorable budget resolution, pessimism 

regard~ng the general economy and a market perception of ease by 

the Federal Reserve. Also, growth rn the money supply seemed to be 

subsiding = 

In June, however, the optimism regarding the budget turned to 

pessimksi~i, the market began to reflect estimates of high growth in 

money supply for early July, and to many observers it appeared 

that the economy might have begun a recovery phase, These factors 

resultetl in a reversal of markets and sharp increases in rates, 

In JuZy, with the increase in money supply Less than anticipated 

and Ml within its target range, market sentiment again changed 

resulting in another significant decline in rates. This change was 

to some degree bolstered by a so-calied flight to quality and by a 

more negative reassessment of the business outlook, 

This then is the situation in whi~ch we find ourselves as we 

approach the very substantial financing that we now face and will 

continue to face for the foreseeable future, 

Before makin? our specific recommendations on thc quarterly 

financing, 1 will cover another item in your charge because it has 

an effect on this financing, 

We recommend that you treat all foreign subscriptions tor 

coupon issues as add-ons to the announced size to be bid for, We 

believe this woulci reduce uncertainty as to the amount to be bid on 

in the auction, We also think this crould permit a soriewhnt higher 

lcvel. of coupons to be soid than under the present system, 
If thls change 1s adopted, it should be clearly communicated 

to the medla and marketplace so as to remove any possiblc critisism 

for subterfuge. 

Me belleve that the present procedures for Trcasory b~lls 

should be retained as is, in order to maintain control of the size of 

the issues, 

In addition, we feel that the Treasury should maintain and, when 

appropriate, -- use the right to allocate foreign subscriptions, 

This brings us to our specifi.~ recommendation for the August 

financing and for raising cash in the current quarter, To refund the 

August 15 maturitites and raise additional cash, we recommend the sale 

at auction of $6 billion of 3-year notes due August 15, 1985, and a reopening of the 13-3/4% note due May lS1 1992, for an additional $5 

billion. A slight majority of our Committee favored reopening this 

issue over creating a new 10-year maturity. 

While it would appear that this would raise $6-7 billion in 

cash, the foreign add-ons would add about $900 million more if 

rolled over, resulting in a total of $7.4 billion of new cash. 

We rccornmmend that the auction for the 3-year issue be held 

on Tuesday and the 9 3/4-year on Wednesday. 

In order to raise an additional. $33.2 billion and end the 

quarter with a $20 billion cash balance, we recommend the following: 

1, Beqinning with August 19th sell each week $10-7 billion 

bills raising new cash of $8,9 billion; 

2. Sell $6-5 billion 1-year bills settling August 12 and 

September 9 raising $3 -7 hi,llion; 

3, Increase 2-year notes to a size oE $6.5 billinn for 

$3-9 billion in cash; 

4* During the flrst half of septemher sell $5 billion in 

;-year notes -- S5 hillion in cash; 

5, Sell $5 bil.lion in 4-year notes with a September 30 

rnaiurity rai.sing $2,6 hillion in caslh; 

6, The recommended August 15 refunding wou1.d raise $6.7 

billion in cash; 

7, The add-ons of foreign subscriptions would raise $2.4 

billion in cash (after considering recent toreiqn sales 

of holdings of about. $500 million) and considering 

rollover of the balance held. 
These cash addrtlons add up as follows: 

Weekly Bills $Sag billion 

1-year Bills 3 -7 

?-year Notes 3,$ 

5-year Notes 5-0 

$-year Notes 2-6 

Rcf undinq 6.7 

The Committee feels that the Treasury should hold new cash 

raised from bills to as close to 1/3 of total cash as possible. 

Our preference is to first enlarge present cycle notes, then to 

introduce new cycles (another 4-year first) and to increase bills 

as a last choice. 

Quarter end cash balances of S20 billion on September 3C and 

$15 billion on December 11 seem apy-roprrate to us, but we suggest 

that you might want to build up the December balance if circumstances 

pernit, 

We also discussed two related matters, First, the Committee 

suggests that the Treasury reconsider its removal of the ban on 

presale trading of coupon issues, We feel. that presale trading of 

such issues increases credit risks in the marketplace and reduces 

the number of bidders in the auction possibly increasing interest 

costs. 

The second is a recommendation that the Treasury be alert to 

the possibility for the use of a fixed price subscription. This 

would require a positive yield curve and more stable market conditions 

than those that presently exist, 

This concludes the Comr.;rttee report, We would now be happy 

to answer any questions that you rnlght have for us, 

Respectively submitted, 

Vice Chairnan 
REPORT TO THE SECRETARY OF THE TREASURY 

FRDN THE U.S, GOVERNMENT AND FEDERAL AGENCICS 

SECURITIES COMMITTEE OF THE 

PUBLIC SECURITIES ASSOCIATION 

October 27, 1982 

Mr, Secretary; 

Contrary to thc dire predictxons preceding the event, 

the Treasury successfully ralsed $60.6 billion durlng third 

quarter, 1932. Debt issuance was axded by strong markets 

and a growing quality preference on the part of many investors. 

A concensus among market seers and observers would indicate 

that Treasury finances during the fourth quarter will again be 

blessed by similar events -- although the intensity and degree 

of tile downward movement in rates may be less pronounced than 

in the third quarter, ljiarkets may well be more vulnerable to 

anticipated financing both frcn public and private issuers, 

investors will be tempted by a growing array of alternatives for 

their funds, and markets will be disrupted periodically by 

ur.sct.tling financizl and economjc events, Nevertheless, this 

Cormittee believes that the Treasury's financing needs for the 

quarter can he net through the utilization of normal financing 

tec!ir?iques .witt:out adverse impact on the market or competitive 

borrowers, 

The Cannittee recommends cash balance goals of $15 billion 

for Deceraber 31, 1982 and $10 billion for March 31, 1983, These 

levels were approved by a vote of 17 to 6. These dissenting 

would favor a higher level* probably $20 billion, at December 31 

to better anticipate first quarter 1983 borrowings, All agree the 

$10 Lillion level at March 31 is satisfactory. 

The Refunding 

The Committee by a vote of 20 to 3 recommends that Treasury 

offer a $i3,5 billion refunding package that would raise approximately $9-0 billion in new cash. The three members not approving 

this recommendation would offer a smaller package of $13,0 billion, 
The Committee recommends that the following securities be 

auctioned to refund the S4 -6 billion of notes maturing on 

November 15, 1982: 

$6-0 billion 3 year notes to mature 11/15/85 

4,0 billion 10 year notes to mature 11/15/92 

3,5 billion 30 year bonds to mature ll/l5/2012* 

'[callable in 2007) 

As might be expected, a principal point of discussion was the 

a~rsunt of the long tern bond, The $3,5 billion rep~resented the 

view of 19 Comnittee members, Four members would be more comfortable with an amount of $3.0 billion long boncis, The minority 

viewpoint included concerns about displacing other demands for 

long term financing and placing too heavy a financing burden on 

the longer sector of the narket. The majority argtled that because 

of the lack of bond authority and the proliferation of stripped 

lonc bond coupon trusts, the narket had a pent-up demand for lonq 

Treasury hor~iis and was in an excellent technical position, In 

addition, investors arc beconing more prone to debt extension as 

interest rates fall and the yield curve steepens, 

The Co~zrittee was ur.aninous in approving a $6-0 billion/ 

$4.0 billion split ket~een the 3-year and 10-year notes for ths 

balance of the refunding. 

Should the Treasury opt to issue only $3-0 hillion of long 

tern bonds, the $500 nillion could be added to the 10 year note 

offering, nakinq it $4-5 billion, 

Refundrnq Auction Data 

The Comnittee reconnends that, if nechanically practical the 

following sequence of offerings be utilized: 

Issue Auctio~ Date 

Wednesday, Novenher 3 

Tt,brsda y Novenber 4 

Tuesday, November 3 

Observing this schedule would avoid auctioning a large anount of 

long term bonds on a Friday in an already shortened week, Xi: there 

are mechnical impediments to this auction schedule, we would reconmenc? 

that the long 'bond be aac'cioned after the normal &ill auction on 

onday, November 8, 
FinancinLin the Remainder of the Fourth Quarter 

Appended to this report is a schedule showing the Comnitteevs 

recornendations for financing in the balance of the fourth quarter, 

This plan was approved by a vote of 22 to 1, The lone dissent 

felt that we should be nore specific in reconmending the use of 

cash nanaqement hills to transfer some of the fourth quarter's 

funding burden to the normally light financing needs of the second 

calendar quarter in 1363, Rs you will note, our financing schedule 

?oes not specify any cash nanaqement bill usage - rather the Committee 

felt it best to reserve the use of these bills to act as a balance 

wheel against unanticipated increases in cash needs or adverse 

market conditions that mlqht involve reducing the size of some 

coupon offerinqs, 

The reconnendation for the balance of the cruarter contemplates 

a 30% - 70% split between bills and coupon issues, a division we 

feel important in achiev~nq debt extension and promotinq an upward 

sloy'inq yield curve, You may also note that the schedule contenplates 

a $6,0 blllion offering of 5 year notes while holding the 4 year 

offering to $5-5 billjon, This is due to the fact that the 4 year 

note wlll be part of the late auarter second refunding week in which 

three issues will be sold. 

The reco~mended f~nancing schedule contemplates only the use 

of existrng financing patterns without the introduction of any new 

cycle notes. 

Introduction of New Cycles -- -- 

The Cornittee discussed the potential need to expand the use 

of monthly cycle note financing, It was noted that the Treasury 

had been successful in expanding the size of traditional offerings, 

obviating the need to expand either the four or seven year offerings 

into monthly cycles, The Committee applauds this strategy as 

consistent with sound debt management policy* It nust be noted, 

however, that at sone time the introduction of new cycles nay he 

desirable. In the current quarter it must be noted that $14 billion 

in open market borrowina is avoided by a reduction in Treasuryas 

cash balance. Should needs become s o g r e a t and market conditions 

less propitious, the Committee would reconnend expansion of cycle 

notes rather than reverting to the bill market, 

The Question of a Subscription Offering 

The Committee, as part of its usual agenda, discussed the 

possihility of recommendin3 a suhscription offeri in the current 

refunt'in2, The argunects for and aqainst are we1 known, It was 

concluded that thi,s technique of debt management y at some future 

time present the Treasury with an opportunity to raise a very large 

sum of new money, At present, however, we believe that existing 

debt management techniques are serving Treasury adequately. We 

will continue to value the subscriptian option in light of external 

market conditions and Treasury financing needs, 
Repurchase Agreements 

As a concluding topic, the Conmittee believes it neceessary 

to comnent on the recent developments in the market for repurchase 

agreements. 

We believe repurchase agreements, in their role as the principal 

f inanclng vehicle for dealer an8 investor positions in Treasury 

securities, act to underpin a viable market in Treasury debt, R/PSs 

also provide those seekinq to employ funds for short periods of 

time w~th an attractlvc alternative and thus auyment the viability 

of the money market. We feel it entirely appropriate that Treasury 

work with other interested parties toward establishing the purchaser's 

rights to secdrlties held in a repurchase agreement transaction. 

The Public Securities Association would be pleased to furnish any 

lnfornatlon on this problem that Treasury officials may desire, 

The Comnlttee is honored to advise the Treasury during these 

turbulent and interesting Llmes, 

Ce are ready for your questions, 

Respectfully subnitted, 

David G, Taylor 

Cha i rma n 
That alrmdy-raised or announced: 

Regul3r Weekly Treasury Bills (includes 10/28 bill) +$ 4,O 

One-Year Yrea~~lry Bills (includes 10/7 and 11/4 bills) +$ 3.7 

2-Year Note (~ncludcs $575 rnilllon foreign ad&-on) +S 3.0 

+$ m 

RguLar Weekly Treasurg. Bills 

he-Year Treasury Bills 

2-, 4-, lix7 5-Year Notec* 

Refundinq* 

* Includes anticipter3 foreign ad&-ons totallirq approximately $2-1 billion, 
fSSLIE: ANALYSIS OF NIK TO BE KRJE 

($ Billions) 

Projected 

Weekly Brlls - Outstai7dmq Size 

Ref unciin~ : S 4.5 

Foreign 

New Cash 

New Cash 

Parsed