WASHINGTON - The Treasury Department today is switching from a new rate table adopted three days ago for state and local government series securities to the table that was formerly used.
Treasury officials said the new table, which was introduced to make it easier for issuers doing advance refundings to invest in time-deposit Slugs, was abandoned because it was inconsistent with how Slugs rates had been set under the old table and with how rates are set for other Treasury securities.
However, industry official suspect the Treasury returned to the old table after discovering the new one would allow issuers in some cases to obtain higher Slugs rates.
Rates for time-deposit Slugs, which issuers can purchase to meet yield restriction requirements on their escrow accounts when they advance refund; tax-exempt bonds, typically are set daily at interest rates that are 1/8 of 1% below the current rates for comparable Treasury securities.
The Treasury publishes the Slugs rate table daily so market participants can determine what rates apply to Slugs with different terms.
The new table, under which Slugs rates were based solely on their maturity dates, did not take into account that issuers have 15 to 60 days between the time they subscribe and actually invest in Slugs.
In other words, an issuer using the new table that subscribed yesterday to Slugs maturing on Dec. 22, 1992, could have delayed purchasing those Slugs until Nov. 23 and received a rate of 2.81%, or the equivalent of a two-month rate.
Under the old table, however, rates were based on the number of months between the purchase and maturity dates of the Slugs. So Slugs purchased Nov. 23 and maturing on Dec. 22 would have been purchased at a one-month rate, which probably would have been set at about 2.76%.
Treasury officials acknowledged that the new table could have been used to obtain Slugs rates that were as much as 10 basis points higher than they would have been under the old table.
But they said they were mostly concerned that the methodology under the new table would favor some issuers over others and would be inconsistent with how rates are set for other Treasury securities.
"Some investors who would have used this new table and who were not as sophisticated would be at a disadvantage" to those who could figure out how to get the higher rates, a Treasury official said.
"You don't get a 45-day Window to lock in with other Treasury securities," the official added.
But most industry officials said they liked the new table because it cleared up confusion that resulted from the old table when months were 31 days long, it was a leap year, or Slugs matured in the middle of a month.
"It's not precisely clear from the old table when you're buying a Slug that matures between months whether you go to the shorter month or the longer month to get the rate," said an investment banker in New York who asked not to be named.
Treasury officials said the new table will remain in effect for those issuers that used it Monday, Tuesday, and Wednesday of this week. But everyone else must begin using the old table again as of today, they said.
The Treasury's switch to the new table and its sudden return to the old one created havoc for some broker-dealers and other market participants.
Some Slugs buyers said they were unaware the new table had been introduced until their computer software that was designed to respond to the old table broke down.
"It confused the devil out of me," an analyst from a Florida-based broker-dealer that did not want to be identified said Tuesday. "It took me a couple of days to figure it out. I'm still re-programming the computers."
That analyst was not pleased to learn Wednesday that his work was all for naught and that he would have to reprogram the computers to mesh with the Treasury's old Slugs rate table again.
Treasury officials, however, said they announced the changes in the tables on the Commerce Department's computerized economic bulletin board and through the Federal Reserve and Treasury's Bureau of Public Debt.