• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
January
27,
1982
i,c,
Secretary:-4s you
are
well
aware, after
a
late 1981 rally ofsubstantial proportions, the
f
!.xed income markets !lave
in
recent
weeks
fallen dramatically,
The
twin facts
of
aneconomy in recession
and
suhstantid iicproveinent in the
(-
U
r-
IT
.,~t
,
rate o; infl.ation have been overridden in the mainby the longer range fears associated with burgeoning Federaldeficits and
the
near
term
fact
of
outsized growth inmoney supply statistics an8 at least
2
perceived tighteningresponse by the Federal 2eserve.
At
present, the outlookfor the market does not appear propitious,
hut
as
it
oftenhas
in
t3e past, market psychology can change radically andquickly,,T'ki Cornmit,ki?e rccilmmeiiiations are offere6 in
tbte
contiixt
of
expectations that mrkets
will
continue to he iliglily volatile
1nc3
capriciousandthat
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
easytirms ahead for
tbse
who need to borrow money,
In
its
deliberati~ns, he Cornmittre first considered tile
pros
and cons of recommending
a
fixed price subscription typeiif rering in
Lhis
refunding'
The
conclusion reached
by
a vote
oL
18
to
5
was that
a
fixed price subscription orfering wasneither 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
pricesubscription offering
is
an
expensive alternative
to
current~iuctions nd, therefore, should be reserved for
times
ofparticular 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;ilievesthat
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
to100 basis p0int.s in yield. The
Committee
also
feels, however,that the fi-xed. price subscription offeriny remains a partof 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 theinvestor
to
acquire suhstantial1.y improved returns
against
alterna"i.vo shorter
term
investments,
it
shoul,i! also benentinned that rccewt volatile markets discourage investorlengthening and also presentsubstantial. mechanicai problemsi.n prici.nq and offering a fixed price subscription issue.3uriny the extended discussion surrounding the foregoingtopic,
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
wouldreview an agenda
ofitems
emanating frm the confluence ofvast1.y changed Treasury fundi.ng needs, nodif ied FederalReserve operating techniques, volatile market conditions andaltered investor needs and preferencess
We
will
work.
withyour staff in evaluati.ng and planning such
a
meeting-In structirin~j
ts
refunding reconmendations,
the
Cornittee has been {,juidei?
by
what i,t vi%s as a need to takegreater advantage of the market focus at.tendant
ko
refurrdinqperiods,
As
we
have
stated before, we feel that amounts ofnew
money
raised in eonjuction with major refundings shoul61
5c
increased substantially, Accordingly, and with the addedemphasis
of
a
ionanimous vote, the Committee recommends
a
$12billinn 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
$2-5
billion reopening
of
the existino
issue
of bonds
(due
l.5
.1.
The ::o!ntuittce continues to
f
eel
that, wherepassihle, si:iaLl$?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
iliion 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
,to100 basis points in yield. The Committee aLso feels, however,that the fixed price subscription offering remains
a
partof Treasury's funding arsenal to be used at some future timewhen conditions appear to favor
its
success or require
its
use. Perhaps the most important market prerequisite to itsuse
is
a steep upward sloping yield curve which enables theinvestor to acquire substantially improved returns againstalternative shorter term investments.
It
should also bementioned that recent volatile markets discourage investorlengthening and also present sustantial mechanical problemsin pricing and offering a fixed price subscription issue.During the extended discussion surrounding the foregoingtopic,
it
became apparent that a thorough review
by
thisCommittee of present debt management procedures and techniquesmay
well
he in order, Wewould suggest
a
special meeting tohe held during the next month or two at which time we wouldreview an agenda of items emanating from the confluence of'vastly changed Treasury funding needs, modified FederalReserve operating techniques, volati1.e market conditions andaltered investor needs and preferences. We
will
work withyour stafE in evaluating and planning such a meeting,In structuring
its
refunding recommendations, theConrni.tte@ has heen guided by what
it
views as a need to takegreater advantage of the market focus attendant to refundingperiods-
As
we have stated before, we feel that amounts ofnew money raised in conjuction with major refundings should
he
increased substantially. Accordingly, and with the addedemphasis of a unanimous vote, the Committee recommends
a
$10billion 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
illion reopening of the existing issue of bonds due11/15/ZOlI. The Committee continues to feel that, wl~erepossibl.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=*
,
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
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...