oversight

Federal Debt: Debt Management in a Period of Budget Surplus

Published by the Government Accountability Office on 1999-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Requesters




September 1999
                  FEDERAL DEBT

                  Debt Management in a
                  Period of Budget
                  Surplus




GAO/AIMD-99-270
United States General Accounting Office                                          Accounting and Information
Washington, D.C. 20548                                                                Management Division



                                    B-283077                                                                     Leter




                                    September 29, 1999

                                    The Honorable Pete V. Domenici
                                    Chairman
                                    Committee on the Budget
                                    United States Senate

                                    The Honorable Bill Archer
                                    Chairman
                                    Committee on Ways and Means
                                    House of Representatives

                                    You asked us to provide additional information on debt management issues
                                    to supplement our recent publication, Federal Debt: Answers to Frequently
                                    Asked Questions—An Update (GAO/OCG-99-27, May 28, 1999). In this
                                    report, we discuss actions taken by the Department of the Treasury to
                                    manage the marketable debt held by the public during the recent period of
                                    unified budget surpluses.

                                    The Treasury's stated goals for debt management—to have sufficient
                                    operating cash to meet the government's obligations, to achieve lowest
                                    financing cost, and to promote broad and deep capital markets—have
                                    remained the same to date regardless of whether the unified budget is in
                                    surplus or deficit. However, surpluses raise different debt management
                                    challenges in meeting these goals. The smaller amount of outstanding debt
                                    reduces the Treasury's flexibility to sustain efficient markets across the
                                    wide variety of instruments in demand by potential investors. Balancing
                                    debt management goals in a time of surplus has prompted the Treasury to
                                    consider new approaches affecting

                                    • the profile (type and maturity) of debt held by the public,
                                    • the management of cash balances, and
                                    • the development of strategies to actively change the characteristics and
                                      volume of outstanding debt.




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             To answer your request, we reviewed publications1 and interviewed
             officials of the Treasury Department from May 1999 through August 1999 in
             Washington, D.C.



Background   In fiscal year 1998, the federal unified budget turned from having an annual
             deficit to having a surplus—the first unified budget surplus since 1969. The
             fiscal year 1998 unified budget surplus resulted in about a $51 billion
             reduction in debt held by the public. Because a unified budget surplus
             reduces the amount of outstanding debt held by the public, this change has
             implications for the Treasury's management of the federal debt. The
             Congressional Budget Office's (CBO) recent projections show that
             continuing unified budget surpluses could reduce outstanding debt held by
             the public from about $3.6 trillion in fiscal year 1999 to $0.9 trillion over the
             next 10 years.2 As figure 1 shows, the debt held by the public reached a
             peak of $3.83 trillion in March 1998 and dropped to $3.65 trillion on July 31,
             1999.3




             1
              For this report, we used the Daily Treasury Statement and Monthly Treasury Statement,
             published by the Treasury's Financial Management Service, and the Monthly Statement of
             the Public Debt of the United States, published by the Treasury's Bureau of the Public Debt,
             as the sources of data.
             2
              These budget projections assume compliance with discretionary spending caps on such
             spending through 2002, that discretionary spending will grow at the rate of inflation
             thereafter, and that all surpluses are used to reduce debt.
             3
             This total is net of unamortized premiums and discounts on public debt securities.




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Figure 1: Federal Debt Held by the Public, September 1996 through July 1999




                                          Source: Monthly Treasury Statement, Department of the Treasury.


                                          Just as deficits lead to increased borrowing, surpluses generally result in
                                          the Treasury retiring debt. These two actions are not symmetrical,
                                          however. When the debt is increasing, the Treasury is issuing more
                                          securities than are maturing and is adding to the amount of debt
                                          outstanding. By selecting the instruments with which to borrow, the
                                          Treasury can have a greater effect on the maturity profile of the
                                          outstanding debt. In contrast, during periods of surplus, the Treasury is
                                          retiring more debt than it is issuing. Because the Treasury is not adding to
                                          the amount of debt outstanding, the maturity profile is more determined by
                                          the maturities of the remaining outstanding debt. As a result, the profile of
                                          outstanding marketable debt—both the type of security and when the debt
                                          matures—is a significant determinant of how and when the Treasury can
                                          reduce debt.

                                          The profile of the Treasury's marketable securities consists of bills that
                                          mature in a year or less, notes with original maturities of at least 1 year to
                                          not over 10 years, and bonds with original maturities of more than 10 years



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out to 30 years. As figure 2 illustrates, as of July 1999, 57 percent of the
outstanding marketable public debt is nominal (not adjusted for inflation)
notes, 20 percent is bills, 20 percent is nominal bonds, and the remaining 3
percent is inflation-indexed notes and bonds.



Figure 2: Treasury Bills, Notes, and Bonds as Percentages of Marketable Public
Debt Outstanding, July 31, 1999




Source: Monthly Statement of the Public Debt of the United States, Department of the Treasury.


The mix of Treasury securities outstanding—the profile of maturing debt—
changes as new debt is issued or existing debt is retired. The profile of
securities is important because it can have a significant influence on
interest payments and liquidity.4 For example, over an extended period of
time, a long-term bond typically carries a higher interest rate—or cost to
the government—than a shorter-term security because investors demand


4
 A liquid market is one in which trading can be completed at will and the offer and purchase
prices differ only slightly.




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                   higher interest to compensate for what they see as greater risks, such as
                   higher inflation in the future. However, long-term bonds offer the
                   government the certainty of knowing what the Treasury's payments will be
                   over a longer period and spread out refinancing requirements over a longer
                   period. At the other end, short-term debt generally carries a lower interest
                   rate because the risks are carried over a shorter period of time. However,
                   issuing too much short-term debt exposes the Treasury to increased
                   interest rate risk as it must go to the market more often. The debt profile is
                   also important because it can influence the Treasury's choices about how
                   to reduce debt held by the public and its ability to respond to market
                   changes.



Results in Brief   The transition from annual unified budget deficits to surpluses has had
                   consequences for both the profile of outstanding federal debt held by the
                   public as well as the Treasury's strategies for achieving its debt
                   management objectives. The effect of better-than-expected fiscal outcomes
                   in 1997 and 1998 initially resulted in reductions in short-term debt. The
                   “April surprise” that occurred in fiscal years 1997 and 1998 created a
                   situation in which the Treasury suddenly and quickly absorbed
                   unexpectedly high tax revenue. Since some bills mature each week, the
                   unexpected cash inflows were used to redeem bills. However, according to
                   a Treasury official, bills were redeemed at such high levels that the liquidity
                   of the bill market was adversely affected and the average life of marketable
                   debt increased modestly.

                   The Treasury took steps subsequent to April 1998 to position itself better to
                   reduce debt while promoting market liquidity for its securities, keeping its
                   costs low, and achieving cash management goals. Rather than across-the-
                   board reductions in all issues, the Treasury decided to concentrate its
                   borrowing in fewer but larger debt offerings, eliminating the 3-year note
                   and reducing the frequency of the 5-year note from monthly to quarterly in
                   May 1998. To better prepare for the possibility of another larger-than-
                   expected influx of April tax receipts in fiscal year 1999, the Treasury
                   operated with a lower cash balance and issued cash management bills to
                   ensure adequate cash balances. This cash management strategy increased
                   the Treasury's flexibility and permitted the Treasury to more quickly apply
                   the surplus to debt reduction in fiscal year 1999 than in fiscal year 1998.

                   In the first 10 months of fiscal year 1999, the Treasury rebalanced its debt
                   portfolio by shifting its debt reduction efforts from Treasury bills to
                   Treasury notes. The Treasury chose to reduce the volume of notes



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                      outstanding even during months when spending exceeded receipts, issuing
                      more bills during this period. Collectively, these actions shortened the
                      average maturity of outstanding debt while improving liquidity in the bill
                      market.

                      While total debt held by the public continues to decrease because of the
                      unified budget surplus, the Treasury may use other tools to concentrate
                      new debt into larger issues and to redeem higher cost or less liquid
                      outstanding debt before it matures. These actions include reopening the
                      most recent securities issues (selling more of the most recent issue rather
                      than opening a new issue), repurchasing outstanding debt before it
                      matures, and redeeming callable securities as they become callable. If
                      implemented, these initiatives could enhance the Treasury's ability to
                      support two of its goals—a broad, deep market for Treasury securities and
                      lowest cost financing—while at the same time ensuring adequate cash
                      balances.



The Treasury's        The transition from unified budget deficits to unified budget surpluses was
                      accelerated by greater-than-projected net revenues. In fiscal years 1997 and
Evolving Debt         1998, both the Office of Management and Budget and the Congressional
Management Strategy   Budget Office underestimated revenues. As a result, cash flows from tax
                      receipts in April of each of these years provided substantially more cash
                      than expected. Because fiscal year 1998 was the first year with an annual
                      unified budget surplus, the Treasury initially retained the cash, increasing
                      operating cash balances, and did not significantly reduce total debt held by
                      the public. However, over the full fiscal year, the Treasury did change the
                      profile of outstanding debt by significantly reducing bills, reducing some
                      notes, and continuing to issue bonds and inflation-indexed securities.
                      (See figure 3.) Bills are the most readily available instrument with which to
                      make changes in the securities mix because new bills are issued and
                      maturing bills are redeemed weekly. Although in fiscal year 1998 total
                      marketable debt declined 3.2 percent, the amount of outstanding bills fell
                      9.2 percent. The result of concentrating fiscal year 1998 debt reduction on
                      bills is that about $64 billion fewer bills will mature in 1999 than matured in
                      1998.

                      In addition, this disproportionate redemption of short-term debt also
                      caused the average maturity of the debt to lengthen modestly (from 5 years
                      and 3 months at the beginning of fiscal year 1997 to 5 years and 8 months in
                      May 1998). If left unaddressed, the shortage of bills and the lengthening of
                      the average maturity of outstanding debt could have increased the



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Treasury's cost of borrowing. According to Treasury and Federal Reserve
officials, the amount of bills reduced was sufficiently large to cause the
market for bills to become less liquid.

Immediately following the April 1998 surge in tax receipts, the Treasury
began to take actions to better position itself to reduce debt while
continuing to support its three debt management goals. The Treasury
decided to concentrate its borrowing on fewer, larger issues instead of
making across-the-board cuts among all debt issues. As part of this
initiative, in May 1998, the Treasury eliminated the 3-year note and reduced
the frequency of issuance of the 5-year note from monthly to quarterly.

In fiscal year 1999, the Treasury continued to address the liquidity in the bill
market by rebalancing its portfolio of debt. To prevent further erosion of
bill liquidity, the Treasury targeted its debt reduction on notes rather than
on bills−a decision that also helped to shorten the average maturity of
outstanding debt.5 Targeting debt reduction to notes was complicated by
the fact that slightly more than half of the notes coming due in 1999
matured in the first half of the fiscal year−a time when outlays generally are
greater than receipts and the Treasury needs to be a net issuer of debt. As
figure 3 shows, cash flows follow cyclical patterns driven by the seasonal
nature of receipts and outlays, and the Treasury has to borrow during
months of negative cash flow even when the unified budget is expected to
be in surplus for the full year.

Despite these hurdles, the Treasury has reduced the volume of notes
outstanding in 9 of the first 10 months in fiscal year 1999, even in months
when outlays exceeded receipts. The Treasury has used two strategies to
facilitate rebalancing the portfolio of outstanding debt. First, by issuing
more bills during months of negative cash flows, the Treasury generally
could redeem notes. (See figure 3.) This strategy also addressed the
liquidity problem in the bill market and shortened the average maturity of
outstanding debt.




5
 The Treasury continues to replace some nominal debt with inflation-indexed debt.
Inflation-indexed notes and bonds, which were introduced in January 1997, grew to
1.8 percent of privately held marketable securities by the end of fiscal year 1998 and to
3 percent as of June 1999.




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Figure 3: Month-to-Month Change in Treasury Securities and Budget Deficit or Surplus, October through July, Fiscal Year 1999
and 1998




                                          Source: Monthly Treasury Statement and Monthly Statement of the Public Debt of the United States;
                                          Department of the Treasury.


                                          Portfolio rebalancing also was facilitated by the Treasury's willingness to
                                          hold lower cash operating balances. As figure 4 shows, cash balances
                                          generally have been lower from February to June in fiscal year 1999 than in
                                          comparable months during fiscal year 1998. The Treasury was able to use
                                          more of the cash from the surplus to reduce outstanding debt because they
                                          operated with lower cash balances.




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Figure 4: Treasury's Daily Cash Balance, January through June, Fiscal Years 1998 and 1999 (Dollars in billions)




                                           Source: Daily Treasury Statement; Department of the Treasury.


                                           This cash management strategy included a more active use of cash
                                           management bills in 1999. The Treasury uses cash management bills to
                                           bridge the low points in cash flow, thereby facilitating lower cash operating
                                           balances. Issuing cash management bills in months when cash flows were
                                           negative also helped the Treasury to reduce debt in these months when it
                                           otherwise would not have been able to do so. (See figure 5, which
                                           compares the Treasury's use of cash management bills in the first 9 months
                                           of fiscal years 1997 through 1999).




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Figure 5: Treasury's Cash Management Bills Issued in the First 9 Months of Fiscal Years 1997 through 1999




                                          Source: Daily Treasury Statement, Department of the Treasury.


                                          Cash management bills are the Treasury's most flexible debt management
                                          instrument. These bills are issued at irregular intervals with maturities
                                          generally ranging from a few days to about 6 months. Although the initial
                                          yield is generally higher than regular bills with fixed maturities, these bills
                                          allow the Treasury to make lower interest payments overall because of
                                          their generally shorter maturity. The expanded use of cash management
                                          bills and the Treasury's willingness to hold lower cash balances together
                                          contributed to the Treasury's ability to reduce notes in months when cash
                                          flows were negative.




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When viewed over the entire 9-month period, these strategies helped the
Treasury use a larger share of unified budget surpluses for debt reduction
in 1999 than in 1998. As figure 6 shows, a budget surplus does not translate
dollar-for-dollar into debt reduction because the cash obtained from
surpluses can be used to increase cash balances, to finance Federal direct
loan and loan guarantee programs,6 and for other transactions (largely
changes to accrued interest and checks outstanding).7 Figure 6 compares
the allocation of the surpluses for the first 9 months of fiscal years 1999 and
1998. Seventy-two percent, ($68 billion), of the fiscal year 1999 unified
budget surplus through June 1999 has been used to reduce debt. In
contrast, in a comparable period in fiscal year 1998 only 33 percent,
($22 billion), of the surplus was used to reduce debt.




6
 The Federal loan and loan guarantee financing accounts are not included in the budget
surplus, but they do affect the Treasury's financing needs. The amount of the surplus used to
fund direct and loan guarantees made by the government results from the size of program
activity not decisions by Treasury officials.
7
 Several items in the federal budget, such as interest and federal loan programs, are
recorded on an accrual or present value basis. The Treasury's cash balances must be
adjusted for these and other accrued outlays and receipts so that the Treasury can ensure
that it maintains a positive cash balance. This adjusted cash balance is the basis for the
Treasury's borrowing.




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Figure 6: Allocation of Unified Budget Surpluses, October to June, Fiscal Years 1998
and 1999




Source: Monthly Treasury Statement; Department of the Treasury.




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                                         The average maturity of outstanding debt has lengthened from 5 years and
                                         3 months in 1996 to 5 years and 9 months in February 1999. The Treasury's
                                         actions in fiscal year 1999—reducing relatively more notes than bills—have
                                         been aimed at partially offsetting this trend and in March 1999 the average
                                         maturity of outstanding debt stood at 5 years and 6 months. Nevertheless, if
                                         the Treasury continued to sell new securities on the May 1999 schedule, the
                                         average maturity of the outstanding debt would continue to grow. This
                                         would happen because the Treasury would redeem short-term securities as
                                         they mature and longer-term securities would remain outstanding. Figure 7
                                         shows the trend in average maturity of outstanding debt from 1990 to 1998.
                                         The Treasury recently announced further changes to its auction schedule
                                         intended to enable it to counter the lengthening in the average maturity of
                                         debt.



Figure 7: Average Length of Marketable Public Debt, 1990-1998




                                         Source: Treasury Bulletin, Department of the Treasury.




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                              The Treasury announced in August 1999 that it will reduce the frequency of
                              issuance of 30-year bonds from 3 times a year to twice a year. This will
                              allow the Treasury to continue to concentrate on fewer but larger
                              benchmark issues and to partially counter the current lengthening of the
                              average maturity of outstanding debt. Treasury officials also announced
                              that they are considering reducing the frequency of issuance of 1-year bills
                              and 2-year notes. This move would allow the Treasury to increase the
                              liquidity of the remaining benchmark issues.


Other Tools to Increase the   While the surplus is leading to a decrease in total debt held by the public,
Treasury's Flexibility in     the continued ability to issue new debt securities is important to a number
                              of the Treasury's goals. Continuing to issue new debt across the maturity
Managing the Debt
                              spectrum and especially in certain “benchmark” securities8 would support
                              the Treasury's current goals of obtaining the lowest financing cost and
                              maintaining a broad, deep market for U.S. securities.

                              Three actions that allow the Treasury more flexibility in debt management
                              are (1) to reopen an issue, that is, to increase the size of an existing issue to
                              make it more liquid rather than open a new issue, (2) to repurchase
                              outstanding Treasury securities before their maturity dates, and (3) to
                              redeem callable securities before their original maturity dates.

Reopen Current Issues         The Treasury can increase the liquidity of outstanding issues by continuing
                              to sell debt from the most recent issue (reopening) rather than opening
                              new issues. This strategy is useful when the Treasury wants to issue a small
                              amount of a given type of security and it determines that the overall cost of
                              reopening is lower than it would be for new issues. The Treasury uses
                              reopenings regularly for bills and has used this tool in the past for notes
                              and bonds. Reopening allows the Treasury to concentrate its new debt into
                              larger, more liquid issues.

                              Two other tools—advance repurchase of securities and redeeming callable
                              bonds—would target one segment of outstanding debt by either inviting or
                              requiring investors respectively to redeem securities they currently hold.
                              Reducing the amount of outstanding debt through advance repurchase of
                              non-callable and callable securities allows the Treasury to reduce specific,
                              less liquid debt issues and to issue new, more liquid (and generally lower

                              8
                               The most recently issued Treasury securities, known as “benchmark” issues, are used by
                              other financial services to price their products.




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                             cost) benchmark securities across the maturity spectrum and in greater
                             volume than would otherwise be possible.

Advance Repurchase of Debt   In a period of unified budget surpluses, when the Treasury is reducing the
                             amount of debt held by the public, repurchasing debt in advance of its
                             maturity is one tool to allow the Treasury to use the cash obtained from
                             budget surpluses to retire outstanding debt. This tool would allow the
                             Treasury to maintain a higher volume of new, more liquid benchmark
                             securities. Although not a primary reason for the advance repurchases, the
                             Treasury said that it might also occasionally reduce the government's
                             interest outlays by replacing repurchased debt with new lower-yield debt.

                             Section 3111 of title 31, United States Code, authorizes the Treasury to
                             purchase back its outstanding securities, at or before maturity. As indicated
                             by the Treasury in its response to congressional inquiry, this statute
                             provides that money received from the sale of obligations, as well as other
                             money in the general fund of the Treasury, may be used to buy, redeem, or
                             refund outstanding securities (bonds, notes, certificates of indebtedness,
                             or savings certificates) at or before maturity, including securities trading at
                             a premium. In 1978, the Attorney General decided that this provision
                             constitutes a permanent indefinite appropriation, which the Treasury could
                             use for purchase, redemption, or refund of securities. Likewise, the
                             Comptroller General has recognized that section 3111 provides the
                             Treasury with discretion to use any money in the general fund to purchase,
                             redeem, or refund public debt obligations.

                             Earlier this year, Treasury officials said that they were studying the
                             “mechanics and the advisability” of inviting investors to offer to sell notes
                             and bonds they hold to the Treasury. On August 4, 1999, the Treasury
                             published proposed rules that would establish a reverse auction—where
                             primary dealers submit offers to sell (rather than buy) a security.
                             Comments on these proposed rules are due on or before October 4, 1999.

                             Repurchasing debt could necessitate the payment of a premium since most
                             of Treasury's older securities were issued with interest rates higher than
                             those of securities issued today. Any premium paid to buy back debt might
                             be treated as an interest outlay in the budget year when the securities are
                             repurchased.

                             In 1998, Canada introduced a pilot program—a reverse auction to
                             repurchase existing, less liquid bonds from primary dealers and the
                             issuance of replacement current benchmark bonds. This is one part of



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                 Canada's strategy to maintain a well-functioning market in benchmark
                 securities. The goal of the buy back program was to improve the liquidity of
                 the 2-, 5-, 10-, and 30-year notes. According to an official of Canada's
                 Ministry of Finance, an assessment of the pilot program's results will be
                 available later this year.

Callable Bonds   In some years, the Treasury has another way to redeem certain securities
                 before their maturity dates. Before December 1984, the Treasury issued
                 bonds that can be redeemed at the Treasury's option 5 years in advance of
                 the maturity dates (or on any interest payment date thereafter, after
                 providing four months notice) without paying a premium. Although the
                 Treasury has not issued these “callable” bonds since November 1984, a
                 number of outstanding callable bonds with relatively high interest rates
                 could be redeemed beginning in 2000. There are $87.6 billion in high-
                 interest bonds that can be called between May 2000 and November 2009.
                 The Treasury could redeem these bonds as one strategy to reduce the
                 amount of debt held by the public and reduce interest costs. (See figure 8.)




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Figure 8: Callable High-Interest Rate Treasury Bonds (End of Fiscal Year 1998)




                                           Source: Monthly Statement of the Public Debt of the United States; Department of the Treasury.




Future Debt                                Budget surpluses offer the prospects of significant benefits for both the
                                           budget and the economy in the near and longer term. However, surpluses
Challenges                                 pose challenges to the Treasury's debt management. Declining levels of
                                           debt prompt the need to make choices over how to allocate debt reduction
                                           across the full maturity range of securities used.

                                           The stakes associated with debt reduction strategies are considerable. As
                                           debt declines, the Treasury faces more difficult trade-offs in achieving
                                           broad and deep markets for its securities and the lowest cost financing for
                                           the government. Moreover, a wide variety of government and private sector
                                           participants both here and abroad have come to rely on Treasury securities
                                           to meet their investment needs. Both declining amounts of Treasury



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securities as well as shifts in their composition affect the interests of these
participants. These changes, for instance, may very well affect the use of
Treasury securities as benchmarks to price other financial transactions.
Although markets tend to adjust to these shifts over time, changes may not
be seamless or without cost.

Projections of continuing and increased unified budget surpluses suggest
that the challenges to debt management experienced in 1998 and 1999 are a
harbinger of more difficult decisions yet to come. The CBO July 1999
baseline projected that debt held by the public would decrease from
$3,618 billion in fiscal year 1999 to $865 billion in fiscal year 2009, assuming
compliance with discretionary spending caps through 2002, growth at the
rate of inflation thereafter, and that all projected surpluses are used to
reduce debt. To gain an appreciation of the size of the projected reduction,
consider that the level of debt held by the public projected by CBO for
2009 is less than the dollar amount of federal securities owned by the
Federal Reserve and state and local governments combined at the end of
fiscal year 1998. The particular allocation of securities will be determined
by a number of factors but the comparison above gives a sense of the size
of the continuing and more extensive adjustments by both the Treasury and
market participants.

As debt held by the public continues to shrink, there will be greater
pressure on the Treasury to further concentrate debt in fewer issues to
maintain deep and liquid markets. Moreover, the Treasury will need to
reassess its issuance of nonmarketable securities such as state and local
government securities series and savings bonds. In a similar situation,
Canada has begun a pilot program to consolidate its portfolio by buying
back outstanding smaller, less liquid issues, allowing a simultaneous
auction of new, larger replacement benchmark issues. The U.S. Treasury
has taken a number of actions to concentrate its portfolio already and is
considering other strategies to enable them to issue new and more liquid
issues as overall debt declines, such as buying back outstanding less liquid
debt.




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Given the wide range of interests at stake, initiatives to concentrate debt on
fewer issues are bound to raise concerns among various groups of market
participants. The Treasury has a tradition of working closely with these
groups. Obtaining information from the Treasury's ongoing contacts with
market participants is especially valuable as debt held by the public
decreases. The Treasury formally solicits recommendations on debt
structure and the mix of securities from primary security dealers and from
the Bond Market Association's Treasury Borrowing Advisory Committee.
Treasury officials meet quarterly with the Treasury Borrowing Advisory
Committee9 to discuss economic forecasts and the government's
borrowing needs. Treasury officials present the Committee with questions
on specific issues and ask for its views on how to improve the
government's debt programs. The Treasury also meets with dealers
selected by the Federal Reserve Bank of New York before each quarterly
auction announcement. This information from market participants assists
the Treasury in balancing its goals of maintaining sufficient cash on hand,
achieving lowest financing cost, and promoting efficient markets.

The Treasury and Congressional Budget Office generally agreed with this
report and provided technical comments. We have incorporated these
comments as appropriate.

We are sending copies of this report to Senator Frank R. Lautenberg,
Ranking Minority Member, Senate Committee on the Budget;
Representative Charles B. Rangel, Ranking Minority Member, House
Committee on Ways and Means; the Honorable Lawerence H. Summers,
Secretary of the Treasury; and other interested parties. We will also make
copies available to others upon request.




9
 The Treasury Borrowing Advisory Committee was chartered under the Federal Advisory
Committee Act, as amended, and is comprised of between 20 to 25 members who represent
securities firms, banks, and investor groups. The Committee is self-selecting in that new
members are nominated by the Committee and approved by the Treasury.




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                   If you or your staff have any questions concerning this letter, please contact
                   me at (202) 512-9573. Key contributors to this assignment were Thomas
                   James, Jose Oyola, and Carolyn Litsinger.




                   Paul L. Posner
                   Director, Budget Issues




(935311)   Leter   Page 20                                            GAO/AIMD-99-270 Federal Debt
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                                 Permit No. GI00
Official Business
Penalty for Private Use $300

Address Correction Requested