WASHINGTON -- Look for the Treasury Department to make some changes in the way it sells government debt, possibly including a new type of issue.
A senior Treasury official said no decision has been made among a variety of options that are being discussed internally. Any changes are not likely to be announced soon, but officials have to decide what they will do by the end of 1995.
The Clinton Administration now estimates the deficit for fiscal 1995, which begins Oct. 1, will fall to $165 billion thanks to higher taxes on the wealthy, curbs on government spending, and a strong economy that is boosting tax receipts.
Improvement Since '92
The latest estimate marks a continuing improvement since 1992, when the tide of red ink crested at $290 billion.
Moreover, Treasury officials face an unusual decline in the need to churn out more debt because of a quirk in the auction schedule. Beginning in 1991, the government halted quarterly sales of four-year Treasury notes and began selling five-year notes more frequently -- each month instead of quarterly.
these changes mean that beginning in 1995, the government will no longer be paying off maturing four-year notes. Meanwhile, payments on the additional volume of five-year notes won't be due.
A Two-Year Respite
Susan Hering, an economist at Salomon Brothers Inc., estimates that the Treasury's slate of maturing note issues may be slashed by as much as $35 billion.
But Ms. Hering estimates that coupon debt may swell again in 1996 by as much as $65 billion when the deficit is expected to begin growing again and the wave of five-year notes starts coming due.
These large swings in financing requirements create a special problem for the Treasury, which generally likes to keep changes in the slate of debt offerings to a minimum in order to maintain the confidence of the bond market.
The situation is complicated by the fact that Treasury officials have announced a policy of issuing more bills -- securities that mature in a year or less -- along with three-year and five-year notes.
Changes Last Year
To carry out this policy, which is supposed to save taxpayers money by capturing lower yields, officials last year eliminated the sale of seven-year notes and cut sales of 30-year bonds.
In February, the Treasury published a draft proposal to begin issuing a variable-rate note with a maturity of five to seven years that would pay a rate indexed to 13-week bills. The new issue would presumably help cope with the rising tide of debt expected in 1996.
Leonard Santow, managing director of Griggs & Santow Inc., says a variable-rate note is a bad idea because it would confuse the bond market by competing with other issues. And it would not save the government -- i.e., taxpayers -- any money, he says.
Instead, Santow recommends monthly sales of an 18-month bill, which he says money market investors would readily buy. Santow also recommends scaling back sales of two-year and five-year notes, offering them quarterly instead of monthly.
There is too much of this kind of debt in today's bear market, he says. In addition, Santow favors bringing back quarterly sales of the seven-year note, a move that he says would fill a gap in the Treasury's debt menu and provide an attractive issue to traders in mortgage-backed securities and hedge funds.
However, Treasury officials so far are not looking at the idea of an 18-month bill and say it is unlikely they will bring back the seven-year note.