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> FROM THE OFFICE OF PUBLIC AFFAIRS
>
> FOR IMMEDIATE RELEASE
> October 31, 2001
> PO-749
>
> UNDER SECRETARY OF THE TREASURY FOR DOMESTIC FINANCE
> PETER R. FISHER
> REMARKS AT THE NOVEMBER 2001 QUARTERLY REFUNDING
>
>
>
> As a consequence of the further weakening of the economy and the
> increased federal outlays that have occurred since the attacks of
> September 11th, the near-term financing requirements of the federal
> government are larger than we anticipated just three months ago at
> our last quarterly refunding in August. In this setting, the
> management of the Treasury's marketable debt needs to anticipate
> the possibility of a unified budget deficit for this fiscal year and,
> perhaps, the following fiscal year as well. However, even if this
> happens, we expect that the federal government will return to
> surpluses in the coming years.
>
> The terms of the November refunding, including a new 5-year note
> in the amount of $16 billion and a reopening of the 5 percent
> 10-year note issued in August 2001 in the amount of $7 billion;
> and that
> We are adjusting the debt buyback program as follows:
> We will continue to conduct buybacks for the remainder of
> this calendar year;
> We will make no buybacks in January 2002; and
> Beginning in February 2002, we will announce at our
quarterly
> refundings the amount and timing of any buyback operations
> for the subsequent three-month period; and finally that
> We are suspending issuance of the 30-year bond: there will be no
> auction of 30-year securities in February 2002 and we plan no
> further auctions of either 30-year nominal or inflation-adjusted
> bonds.
>
> Recent Changes in the Fiscal Outlook
>
> Debt issuance over the past several years has been structured in an
> environment of large budget surpluses. However, the fiscal
> environment has changed substantially over the past few months due
> to the slowdown in economic activity and to the federal government's
> prompt response to the attacks of September 11th. The Treasury's
> debt management has adjusted already, and will continue to adjust,
> as we accommodate the federal government's increased financing
> needs during this period. But our expectation is that these heightened
> financing requirements will prove short-lived, as the economy
> eventually strengthens, and as the pressures for increased federal
> outlays stemming from the attacks of September 11th subside.
>
> Suspension of Thirty-Year Borrowing
>
> The debt management strategy of the Treasury has been to strive to
> be regular and predictable in the issuance of debt while minimizing
> borrowing costs over many years and interest rate cycles. The
> Treasury does not try to outsmart the market at any one moment or
> to be a "market timer" with respect to any particular shape of the
> yield curve. However, debt management necessarily involves
> judgments about the size and duration of the federal government's
> borrowing needs. This compels us to focus on likely borrowing needs
> over the coming years but we also take into account the likely
> consequences of unlikely outcomes.
>
> We do not need the 30-year bond to meet the government's current
> financing needs, nor those that we expect to face in coming years.
> Looking beyond the next few years, as I already observed, we believe
> that the likely outcome is that the federal government's fiscal
> position will improve after the temporary setback that we are now
> experiencing.
>
> There are two less likely outcomes that we have also considered.
>
> First, it is possible that the federal government will return to
> significant and sustained budget surpluses even more quickly than we
> now expect. In this event, maintaining current issuance levels of
> 30-year bonds would be unnecessary and expensive to taxpayers.
>
> Second, we face the possibility that sustained surpluses do not
> materialize as promptly as we now expect. If later in this decade it
> turns out that 30-year borrowing is necessary to meet the
> government's financing needs, it is still likely that our decision to
> suspend 30-year borrowing at this time will have saved the taxpayers
> money. In addition, the reintroduction of the 30-year bond, at some
> point in the future, if necessary, would likely be costless to the
> Treasury.
>
> The 30-year bond no longer maintains a position of significance in the
> financial markets. Its role and its liquidity have been significantly
> impaired by the substantial reduction of issuance that has occurred
> over the last decade. But the markets have functioned smoothly
> during this period while both activity and attention have shifted to
> our 10-year offerings.
>
> As long as we have borrowing requirements to finance, the Treasury
> will seek to maintain the liquidity and depth of the instruments we
> issue as a means of achieving the lowest cost of borrowing for the
> taxpayer over time. At this time, the best means for us to do this is
> to suspend issuance of the 30-year bond and concentrate our
> borrowing needs on our other instruments.
>
> Adjustment of the buyback program
>
> In response to the altered budget outlook for this fiscal year, we are
> also making adjustments in our buyback program. Beginning in
> February 2002, our decisions on whether to conduct buyback
> operations, and on the amount and timing of any purchases, will be
> made at the time of our regular quarterly refunding announcements
> and will be based upon three factors:
>
> first, our projections of the federal government's annual,
> unified surplus or deficit position;
> second, our projections of that three-month period's cash
> position; and,
> third, our analysis of how best to minimize borrowing
costs
> over time.
>
> In making the transition to these new procedures, our buyback
> operations for the remainder of this calendar year will continue in line
> with our prior announcements. In August we stated that we would be
> purchasing approximately $9 billion during the fourth calendar
> quarter. So far we have purchased $2.5 billion and the remaining $6.5
> billion will be purchased in November and December. Due to the
> holidays in November and December, however, the timing of our
> specific announcements will be altered from recent practice. We will
> make announcements of the specific amounts and maturities of our
> purchases on November 14 and 28 and on December 12 and 19 for
> operations to take place on the following day.
>
> We will make no buyback purchases in January 2002. Beginning with
> our February 2002 quarterly refunding, we will include the details of
> any buyback operations to be conducted in the subsequent three
> months in our regular refunding announcements.
>
> In light of the information that we now have, market participants
> should understand that there are likely to be periods in which we do
> not conduct buyback operations and that there are likely to be other
> periods in which we do conduct such operations, consistent with the
> ebb and flow of our cyclical cash position. But the presence or
> absence of these operations will be clearly announced, in advance, as
> part of our refunding process.
>
> Terms of the November Refunding
>
>
>
> I will now turn to the terms of the November Refunding. We are
> offering $23 billion of notes to refund approximately $21.6 billion of
> privately held notes and bonds maturing on November 15, raising
> approximately $1.4 billion. The securities are:
>
> 1.A new 5-year note in the amount of $16 billion, maturing
> November 15, 2006.
> 2.A re-opening of the 5% 10-year note issued in August 2001
> and previously reopened in October 2001, maturing August
15,
> 2011, in the amount of $7 billion.
>
> These securities will be auctioned on a yield basis at 1:00 p.m. eastern
> time on Tuesday, November 6, and Wednesday, November 7,
> respectively. The balance of our financing requirements will be met
> through 2-year note and bill offerings.
>
> As announced on Monday, we estimate that we will have a $35 billion
> cash balance on December 31 and a $30 billion cash balance on March
> 31.
>
> Our next quarterly refunding announcement will take place on
> Wednesday, January 31, 2002.
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