REPORT TO THE SECRETARY OF THE TREASURY 


FROM T?lE TREASURY BORROWING ADVISORY COMMITTEE OF THE 


PUBLIC SECURITIES ASSOCIATION 


February 3, 1993 


Dear Mr. Secretary: 


Since the Committee's last meeting with the Treasury three 


months ago in November, data for the economy have steadily taken 


on a more positive cast. The track, though slow, now seems 


unmistakably improved, and few still question the sustainability 


of the recovery. Equally, however, few yet foresee a significant 


prospect that growth over the next year or two will be strong 


enough to narrow materially the gap between actual and potential 


output. Gains in employment in particular have been meager so 


far, in part because impressive improvements in productivity have 


been able to meet the rising demand for output. While the 


improved productivity augurs well for future non-inflationary 


growth, the present slow growth in employment tempers current 


optimism. 


From the levels which prevailed at the time of the last 


meeting, yields on Treasury securities have declined, by 


approximately 10 to 15 basis points on maturities under one year 


and up to 50 basis points on maturities of ten years and beyond. 


The yield curve, as a consequence, has flattened, with the spread 


between 2- and 30-year securities, for example, narrowing by 


nearly 25 basis points to approximately 300 basis points. 


It is within this context that the Committee recommends that 


$37 billion of the following securities be auctioned to refund 


the $25.5 billion of the securities maturing on February 15, 


1993, which are privately held, and to raise additional cash of 


$11.5 billion: 


-- $15.5 billion 3-year notes due February 15, 1996; 

-- $11.25 billion 10-year notes due February 15, 2003; 

and, 


-- $10.25 billion 30-year bonds due February 15, 2023. 

The Committee, in its deliberations on the total size of the 


refunding, considered two possible amounts, $36 billion and the 


$37 billion recommended. Seven members favored the former, 11 


the latter. The principal argument in support of the smaller 


size is that the modest reduction of $1 billion from the size of 


the previous refunding in November would be consistent with the 

modest reductions in other recently auctioned coupon issues. A 


majority of Committee members thought, however, that projections 


of borrowing needs for the foreseeable future were sufficiently 


large to warrant keeping the total size of the refunding at the 


level of $37 billion. With respect to the composition of the 


refunding, the Committee favored the amounts recommended by a 


vote of 15 to 3. 


The Committee discussed the possible merits of again 


reopening the 6 318 percent notes due August 15, 2002, but 

decided by a vote of 16 to 2 to recommend the issuance of a new 


10-year security. Most Committee members felt that there were 


few signs of an unusual shortage in the outstanding issue, and 


that in any event a new 10-year security seemed likely to command 


a modestly lower yield when auctioned. 


For the remainder of the quarter, with the aim of achieving 


a cash balance of $20 billion on March 31, the Committee 


recommends the Treasury auction: 


o Two 5-year notes of $11.25 billion each, to raise $22.5 


billion of new cash; 


o Two 2-year notes of $15.5 billion each, to raise $5.8 


billion of new cash; 


o One 1-year bill of $15 billion, to raise $1.2 billion 


of new cash; 


o Weekly 3- and 6-month bills increased from the present 


level of $23.2 billion to $24 billion, to raise $2.3 


billion of new cash; and, 


o A cash management bill in early Uarch to mature 


April 22, to raise up to $20 billion of new cash. 


The Committee was unanimous in this recommendation for the 


remainder of the quarter, except for a sentiment expressed by 


some mukav for reducing modestly the size of the 5-year notes. 

These m.rb.rm felt that the comparatively large size of the 

monthly offerings has caused some congestion in this maturity 


area, possibly resulting in some distortion of the yield curve. 

The net new cash raised in the quarter by the recommendation 


as given would be as follows: 


Refunding $11.5 billion 


5-year notes 22.5 


2-year notes 5.8 


1-year bill 1.2 


3- and 6-month bills 2.3 


Cash management bill 20.0 

Subtotal $63.3 billion 


Less: 4-year note maturity (8.3)


Plus: Already issued or 


announced 


Estimated foreign 


add-ons 


Total Net Market Borrowing $67.0 billion 


For the next calendar quarter, the committee concurs with 


the target cash balance of $35 billion on June 30, though it 


would encourage erring on the higher side in view of the large 


borrowing requirement in prospect for the following quarter. 


Given that prospect, the committee recommends holding the 


issuance of coupon securities essentially level during the April 


through June period and absorbing the temporary reduction in 


borrowing needs in the issuance of Treasury bills. Specifically, 


the Committee recommends that the monthly 2-year note be held at 


$15.5 billion, the monthly 5-year note at $11.25 billion, the 


quarterly 7-year note at $9.75 billion, and the quarterly 


refunding at $37 billion. With respect to bills, the Committee 


recommends keeping the monthly 1-year bill at $15 billion, while 


reducing the weekly 3- and 6-month bills to an average of 


approximately $23.4 billion. Incorporating the paydown of the 


April cash management bill, the payoff in May of the issue 


called, and the maturity of the 4-year note in June, this 


recommendation would raise approximately $28 billion of new cash 


in the quarter. The Committee notes, incidentally, that within 


the quartu there may be a need for short-dated cash management 


bills in both April and June. 


Finally, in the category of other topics, the committee 


notes that with the advent of a new Administration there has been 


considerable speculation in the media and among market 


participants about possible changes in the composition of 


Treasury financings. Both the absolute and relative sizes of the 


longer term maturities issued each quarter, especially the 30- 


year bond, have received particular attention. 

T&m Carmnittea 0omm.nd. the Trerrur '8 intent to study tha 

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