2E:PORT
TO
THE
SECRETARY
(?F
TiiE
'TREASURY
FROM
THE
U.
S,
GOVERNMENT AND
FEDERALAGENCIES
SECURITIES
COMMITTEE
OF
THE
PUHLIC
SECUR'ITIES
ASSOCIATlON
Peburary
1,
1984Dear
Yr,
Secretary:Since our
last.
meeting in Late October, interest rat,.eshave fluctuated sporadically in
a
narrow range with very
little
change on balance, Given the overall short
term
economic outlook we would expect
this
to
continue during thepresent quarter,Treasury coupon auctions
are
now
so
large and frequentthat the market has
little
chance
to
digest
and
rehound from*2ne auction
to
the next,
As
soon
as
one refunding passesinvestors will express caution over making
new
commitmentsprior
to
the next semi-quacterly coupon financing,'This has been mit.i.gated
tosome
extent. by
a
substantialreduction of floating supply of Treasury bonds by couponstripping
or
its
equivalent, Suck stripping has created theoppori:unily for the Treasury
t:o
sell
more
long honds thanotherwise would be possible. On the other hand,
it
night
put
some upward pressure
on
short intt?rmediatc notes,
A
degree of volatility could he introduced in the short
>-
-
cerm
area by the advent of contemporaneous reserve requirementsand the change
in
the reserve period, This could he especially'rue
Pt
the Federal Reserve
were
to
immediately hegin
to
reemphasize reliance on
MI.
as
it.s
primary monetary policydeterminant..With this backgrounrl;
we
recommend that the Treasurycontinue
to
emphasize coupon issues
to
raise
new
cash andthat t~he and 6 month bills he used
as
sparingly
as
pssib1.e
Our specific recommendat ions for the Felxuary 15threfunding
arc
as
follows:Sell $5=5 billion notes due 2/15/87Reopen id25 billion
11
3/4X
notes due 11/1,5/93
Sell
4-75 billion bonds dire 2/1.5/1
4
3u-r Committee v?ted unanimously
in
Favor of
a
total
siz;.
Of the refunding
of
S16,i
hill.ion., !4owcver, foiir
i~t
ur
members would have preferred
to
re(-Juce the
30
year issue
to
$4.5
billion arid increase the
9
3/4
year note
to
$5-5 billion.
7'ili.s
package would
raise
51.2 billion in cast? leaving $17 billion
to
be raised over the balance
of
the
quarter.
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