WASHINGTON -- Members of a Treasury Department advisory panel have recommended that the government consider issuing a floating-rate five-year note before the end of 1995 to help meet rising federal borrowing requirements.
The recommendation was made by the Treasury borrowing advisory committee of the Public Securities Association, which met June 25 at the Treasury's request to consider ways of implementing the recent decision to step up short-term debt issues. Minutes of the meeting, which took place June 24 at the Federal Reserve Bank of New York, were released yesterday.
The panel said the Treasury should look into issuing a five-year note that would carry interest rates indexed to 13-week Treasury bill rates and be reset often, perhaps weekly. Such an instrument may be needed before the due dates of the five-year notes that the government began auctioning each month in January 1991, members said.
"Some members suggested that there is a large market for floating-rate paper that would remain at or near par value regardless of market conditions, that floaters might reduce Treasury financing costs, that floaters mitigate refinancing risk, and that they might appeal to different investors," the minutes say.
The new Treasury policy of increasing short-term debt volume is aimed at taking advantage of lower interest rates for bills and notes while cutting back on issues of the 30-year bond.
The strategy should not require immediate changes in the current pattern of issuing Treasury debt over the next 18 months, and possibly for the next two years, committee members said. They noted that the Treasury "could easily" increase the size of 10-year notes, which are auctioned quarterly, as well as the sizes of the regular weekly bill auctions and the 52-week bills.
But several panel members said the popular sales of two-year, three-year, and five-year notes sold to investors could become "saturated," which would undermine prices. In addition, some suggested that eventually the Treasury should consider bimonthly offerings of three-year notes, now auctioned quarterly, if more frequent debt sales are needed.
The committee also told the Treasury that announcing the amount of bills to be sold to the public in advance of each auction "would give the market greater certainty as to the tradable supply." Currently. the Treasury does this only for notes and bonds.
The advisory committee consists largely of representatives from meets security firms and banks and regularly to advise the Treasury on the quarterly refundings.