[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Proposed Rules]
[Pages 38127-38128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18802]
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DEPARTMENT OF THE TREASURY
Office of the Assistant Secretary for Financial Markets
Fiscal Service
31 CFR Part 356
Amendments to the Uniform Offering Circular for the Sale and
Issue of Marketable Book-Entry Treasury Bills, Notes and Bonds; Notice
of Meeting
AGENCY: Office of the Assistant Secretary for Financial Markets,
Treasury.
ACTION: Advance Notice of Proposed Rulemaking; Meeting.
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SUMMARY: On May 20, 1996, the Department of the Treasury published an
Advance Notice of Proposed Rulemaking soliciting comments on certain
aspects of a new inflation-protection security. The Treasury is hosting
a symposium to discuss the advantages and disadvantages of certain
structures under consideration for the inflation-protection security
Treasury intends to issue. The meeting will be open to the public.
DATES: 3:00 p.m., July 24, 1996.
ADDRESSES: Main Treasury Building, 1500 Pennsylvania Avenue, N.W.,
Washington, D.C. 20220; Meeting Room To Be Announced. For security
reasons, in order to be admitted to the Treasury Building, you must
call the contact person below.
FOR FURTHER INFORMATION CONTACT:
Questions about this notice should be addressed to Alison Shelton,
Financial Economist, Office of Federal Finance Policy Analysis, Office
of the Assistant Secretary for Financial Markets, at 202-622-2680.
Persons wishing to attend the meeting are requested to contact Tinese
Hamilton at 202-622-2624, prior to 12:00 noon Eastern time on July 24,
1996, to make arrangements for attendance.
SUPPLEMENTARY INFORMATION: On May 16, 1996, the Department of the
Treasury (Department or Treasury) announced its intention to issue a
new type of marketable book-entry security with a nominal return linked
to the inflation rate in prices or wages, as officially published by
the United States Government. An Advance Notice of Proposed Rulemaking
(ANPR) seeking comments on various structures was published on May 20,
1996 (61 FR 25164) and a series of meetings was subsequently held by
the Treasury to obtain public input on the new inflation-protection
security.
As a result of the comments received in response to the ANPR and at
the public meetings, the Department is
[[Page 38128]]
holding a symposium to discuss and obtain comments and information on
the comparison between two different structures for an inflation-
protection security--a Canadian-style and a current pay structure.
The Treasury has invited certain commenters to take part in the
symposium. These participants will comment on certain questions posed
by the Treasury and take part in a discussion. Members of the public
are invited to observe. Written comments from the public are also
welcome (see below). The Treasury intends to seek further comment on
the structure for Treasury inflation-protection securities and other
issues prior to issuing final rules.
Possible Structures
The Canadian-style structure was described in the ANPR. Briefly,
the principal of a Canadian-style inflation-protection security is
adjusted for inflation (with a lag) such that its real value remains
constant. The semiannual coupon payments are a fixed percentage of the
current, inflation-adjusted value of the principal on the interest
payment date. At maturity, the inflation-adjusted principal is paid,
along with the last interest payment. (Please refer to the ANPR for the
formulas for the Canadian-style structure.)
Some commenters have suggested that the Treasury consider an
alternative structure that was not described in the ANPR. Under this
current pay structure, all the inflation compensation and real interest
is paid out semiannually. The formula for the semiannual coupon on the
current pay security is the sum of the semiannual coupon and the
principal appreciation (depreciation) of the Canadian-style security.
Looking at this another way, the current pay semiannual coupon rate is
the sum of the real semiannual rate, the six-month percentage change in
the price or wage index, and the product of these two rates. The
principal of the current pay security would not be indexed. In order to
simplify the security, it is assumed here that the rate will not be
less than zero. Possible formulas for the current pay structure are
provided in the Appendix at the end of this notice.
Questions
The Treasury Department is interested in response to the following
questions:
(1) Which structure, Canadian or current pay, is likely to have the
largest potential market?
(2) Which investor groups would find investments in the different
structures appealing?
(3) How would the yield on the current pay structure compare with
the yields on other Treasury securities (bills, notes, or bonds)?
(4) If the current pay structure were strippable, would there be
substantial market interest in the stripped components?
(5) Would the preferred maturity sectors for the current pay
structure be different from those for the Canadian-style structure?
(6) What would be the best way to auction current pay securities?
For example, should the Treasury use a single-price auction and set the
coupon rate at the highest accepted yield? Should reopening auctions be
based on price rather than yield?
(7) Which structure would provide the Treasury with the largest
savings in financing costs?
Written Comments
The Treasury also welcomes written comments on these questions.
Written comments should be sent to: The Government Securities
Regulations Staff, Bureau of the Public Debt, 999 E Street N.W., Room
515, Washington, D.C. 20239. Comments received, together with any
written materials presented at the symposium, will be available for
public inspection and copying at the Internal Revenue Service, FOIA
Reading Room, located at the Internal Revenue Service building at
Pennsylvania Avenue and 11th Streets, N.W., Room 1621, until the
Treasury Department Library reopens.
Dated: July 18, 1996.
Darcy Bradbury,
Assistant Secretary, Financial Markets.
Appendix--Formulas for Current Pay Structure
I. Reference INUM:
t-1
Ref INUMDate=Ref INUMM + ------- [Ref INUMM+1-Ref INUMM]
D
II. Index Ratio:
Ref INUMDate
Index RatioDate = -------------------------
Ref INUMLastSA
III. Semiannual Interest:
A. Coupon = (I/2) x Index RatioDate x P + (Index
RatioDate - 1) X P
though not less than zero.
B. Coupon Rate = (I/2) + Infl. Rate + ((I/2) x Infl. Rate)
though not less than zero.
Definitions:
Date=valuation date
D=the number of days in the month in which Date falls
t=the calendar day corresponding to Date
INUM=index number
Ref INUMLastSA=reference INUM for the original issue date or last
semiannual interest payment date
Ref INUMM=reference INUM for the first day of the calendar month
in which Date falls
Ref INUMM+1=reference INUM for the first day of the calendar month
immediately following Date
I=real interest rate (set at initial auction)
P=principal amount
Coupon=semiannual interest payment amount
Coupon Rate=semiannual coupon rate
Infl. Rate=Index RatioDate-1
[FR Doc. 96-18802 Filed 7-19-96; 2:31 pm]
BILLING CODE 4810-39-M