WASHINGTON -- The Clinton administration has lopped $5.6 billion from its original estimate of the savings from the Treasury Department's move to step up reliance on short-term debt issues.
In a news release issued late Tuesday, the Office of Management and Budget said savings over the five-year period from 1994 to 1998 will total $10.8 billion, or more than one-third less than the $16.4 billion forecast in the President's April budget.
Treasury officials said the change was not a major setback. Frank Newman, undersecretary for domestic finance, issued a brief statement saying, "we can expect to get to just about the same amount of budget savings from changing Treasury debt management that OMB thought we would get."
The Treasury now expects to save a total of $13.4 billion over the five-year budget cycle, but that includes $2.5 billion from lowering the guaranteed minimum rate on savings bonds from 6% to 4%. The savings bond decision was taken in February and is separate from the decision to change the Treasury's debt mix.
Under the revised debt strategy, the Treasury will issue the 30-year bond each August and February, beginning with an $11 billion offering. There will be no bond auctions at the quarterly refundings in November and May.
For the first year, at least, the new policy implies long bond issues totaling about $22 billion, compared with last year's sales totaling $40.25 billion.
The Treasury also decided to eliminate auctions of seven-year notes, which were previously sold in quarterly issues of $9.75 billion. No changes were made in the regular auction of five- and 10-year notes.
The Treasury said it will increase issues of bills and notes with maturities up to three years, where interest rates are lower than those for securities with longer maturities.
The Congressional Budget Office has estimated that a shift in the debt mix will save only $6.4 billion, well short of the administration's revised $10.8 billion forecast.
OMB officials attributed the difference largely to contrasting assumptions about what would have happened to long bond volume without a change in debt management policy. The CBO estimate totaled $37 billion a year in bond issues while the Treasury estimated $49 billion by 1998.
Private analysts were skeptical of the latest savings estimates from the administration. Leonard Santow, managing director of Griggs & Santow Inc., said he expects to see savings over five years in the range of $4 billion to $6 billion.
Over time, the Treasury likely will see a flatter yield curve that pushes up short rates and lowers long rates, said Santow. The shift to shorter maturities "is definitely going to save money," in the first five years, he said, "but after that you might even argue that this will cost money" by failing to lock up current rates on long-term debt.
