MINUTES OF THE MEETING OF THE 

TREASURY BORROWING ADVISORY COMMITTEE 

OF THE BOND MARKET ASSOCIATION 

October 30, 2001 

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. The Federal Register announcement of the meeting and a list of Committee members are 

attached. 

The Committee was welcomed by Timothy Bitsberger, Deputy Assistant Secretary for Federal Finance. Karen Hendershot, 

Acting Director of the Office of Macroeconomic Analysis, summarized the current state of the U.S. economy (statement 

attached). Paul Malvey, Director of the Office of Market Finance, presented the chart show, updating Treasury borrowing 

estimates, and 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 12:05 p.m. All members were present. The Chairman 

read the charge to the Committee, which is also attached. 

The Committee began by discussing the potential for more flexibility in the range of 4-week bill auction sizes as well as the 

week-to-week changes in auction sizes. The general view of the Committee was that the 4-week bill program to date has been 

successful. The program is developing an investor base and enjoys good support from both dealers and retail investors, and 

provides a vehicle that allows investors to capture short-term interest rates to a date. Members noted that the 4-week bill 

trades better than cash-management bills (CMBs) and thus is meeting Treasury ́s objective for a cheaper alternative to CMBs 

for managing volatile cash balances. It was the view of the Committee that Treasury could easily increase the weekly auction 

sizes of 4-week bills to the $24 billion range before the instrument would start trading on-top of repo. Members stated that 

the market would begin to anticipate the seasonal financing needs and thus could handle week-to-week auction size variations 

of between $4 and $8 billion. 

The Committee next addressed the question in the charge regarding potential changes in Treasury borrowing over the nearterm as well as going out the next one to two years in light of the further recent deterioration in the economy, increased fiscal 

expenditures, and the economic shocks from September 11. It was the Committee ́s view that no significant changes in 

Treasury borrowing were currently necessary to address the either optimistic or pessimistic fiscal forecasts over the next 

several quarters. The Committee noted that the maturing coupon requirements for 2002 and 2003, in conjunction with the 

adjustments in weekly bills and 2-year note issuance that have occurred to date, provide Treasury with a great deal of 

flexibility. Changes in the future financing needs over the next several quarters can be addressed through adjustments in 4­

week and weekly bill issuance as well as marginal changes in coupon sizes 

Regarding the composition of the quarterly refunding, by a unanimous vote, the Committee recommended a $16 billion issue 

of a 5-year note and a reopening of the 5 percent 10-year notes of 8/15/11 in an amount of $6 billion. Looking at the 

remainder of the October-December quarter, the Committee recommended that the 2-year notes be increased to $20 billion, 

and that weekly bills be increased from the $29 billion level to the $31 billion level starting in mid November. They 

recommended that the 4-week bills be increased from $12 billion to a peak of $24 billion by mid- November, and then back 

down to the $12 billion range by the end of December. 

The Committee had a brief discussion about the composition of financing for the January-March quarter. The Committee, 

having recommended a sizable $16 billion issue for the 5-year note issue in November, suggested a smaller $12 billion 

reopened size of the 5-year note in February. The Committee made this recommendation after a more general discussion of 

the concept that larger initial offerings of regularly reopened securities tend to enhance benchmark liquidity and tend to 

prevent new issues from trading tight in financing markets. The larger initial issuance may then be followed by a relatively 

smaller reopening. The Committee also recommended a cash management bill in February to finance a seasonal cash-balance 

low. Recommendations for the January-March quarter are in the attached table. 
Some members of the Committee expressed a desire for Treasury policy makers to articulate current debt-management 

intentions and priorities. Recognizing that there were delays in the appointment of key debt-management policy makers at 

Treasury in the wake of delay in last year ́s election, these members felt it would be beneficial to debt markets to have 

Treasury provide such a statement, particularly since the market concerns over benchmark liquidity are still running high. 

Other members argued that such a statement at this particular time, when uncertainty in both private and public economic 

forecasts is high, may limit Treasury ́s flexibility or may lead to a financing cost premium if the guidance proves to be 

wrong. These members argued that the Treasury would be better served by waiting a few quarters, adjusting the financing at 

the margins as needed, and waiting for more information on the fiscal situation to materialize before making such a 

statement. 

Finally, the Committee reiterated concerns over benchmark liquidity. To that end, it recommended that Treasury maintain 

buybacks, further clarify its policy on off-schedule reopenings, consider the previous recommendation on exchange offerings, 

and investigate the establishment of a permanent repo facility. 

The meeting adjourned at 1:05 p.m. 

The Committee reconvened at the Madison Hotel at 6:05 p.m. All members were present. The Chairman presented the 

Committee report to the Assistant Secretary for Financial Markets, Brian Roseboro and Deputy Assistant Secretary for 

Federal Finance, Tim Bitsberger. 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 

October 30, 2001 

Certified by: 

James R. Capra, Chairman 

Treasury Borrowing Advisory Committee 

of The Bond Market Association 

October 30, 2001 
October 30, 2001 

COMMITTEE CHARGE 

The Treasury Department would like the Committee ́s advice on the following: 

• In August, Treasury introduced a 4-week bill to help smooth large swings in Treasury cash balances and reduce its 

reliance on cash management bills. Since its introduction, auction sizes have ranged from $6 billion to $16 billion 

with weekly changes in auction sizes between $1 ‚ 2 billion. Do you see a potential for more flexibility in the range 

of auction sizes and in the size of week-to-week changes in auction sizes? 

• Since the Committee last convened, debt management has been affected by three significant changes since the last 

quarterly refunding in August: further deterioration in the economy, increased fiscal expenditures, and the economic 

shock from September 11. As a result, Treasury ́s short-term borrowing outlook has changed significantly. Some of 

these effects will be only temporal and others will be more cyclical. Ultimately, however, forecasts pointing to the 

underlying productivity of the economy and of social security surpluses suggest that Treasury will resume paying 

down publicly held debt over the longer term. What would you recommend as potential changes in Treasury ́s 

borrowing for the current and next quarter? Going out the next one or two years? 

• The composition of a financing to refund $21.6 billion of privately held notes maturing on November 15 to range 

from paying down less than $1 billion to raising up to $3 billion of debt in 5- and 10-year notes. 

• The composition of Treasury marketable financing for the remainder of the October - December quarter, including 

cash management bills if necessary. 

• The composition of Treasury marketable financing for the January - March quarter. 

• Any other topics related to Treasury ́s debt management program.