[Federal Register Volume 61, Number 189 (Friday, September 27, 1996)]
[Proposed Rules]
[Pages 50924-50937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24860]
[[Page 50923]]
_______________________________________________________________________
Part IV
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
31 CFR Part 356
Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and
Bonds (Department of the Treasury Circular, Public Debt Series No. 1-
93); Proposed Rule
Federal Register / Vol. 61, No. 189 / Friday, September 27, 1996 /
Proposed Rules
[[Page 50924]]
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 356
Sale and Issue of Marketable Book-Entry Treasury Bills, Notes,
and Bonds (Department of the Treasury Circular, Public Debt Series No.
1-93)
AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the
Treasury.
ACTION: Proposed rule.
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SUMMARY: The Department of the Treasury (``Department'' or
``Treasury'') is proposing for comment an amendment to 31 CFR Part 356
(Uniform Offering Circular for the Sale and Issue of Marketable Book-
Entry Treasury Bills, Notes, and Bonds). This proposed amendment makes
changes necessary to accommodate the public offering of new Treasury
inflation-protection securities by the Department. In addition, the
proposed amendment makes certain technical clarifications and
conforming changes.
DATES: Comments must be received on or before October 28, 1996.
ADDRESSES: This proposed rule has also been made available for
downloading from the Bureau of the Public Debt home page at the
following address: http://www.ustreas.gov/treasury/bureaus/pubdebt/
pubdebt.html. Written comments should be sent to: Government Securities
Regulations Staff, Bureau of the Public Debt, 999 E Street N.W., Room
515, Washington, D.C. 20239-0001. Comments may also be sent through the
Internet to the Government Securities Regulations Staff at
[email protected]. When sending comments by the Internet, please
use an ASCII file format and provide your full name and mailing
address. Comments received will be available for public inspection and
downloading on the Internet and for public inspection and copying at
the Treasury Department Library, Room 5030, Main Treasury Building,
1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.
FOR FURTHER INFORMATION CONTACT: Ken Papaj (Director), Lee Grandy,
Chuck Andreatta or Kurt Eidemiller (Government Securities Specialists),
Bureau of the Public Debt, Government Securities Regulations Staff,
(202) 219-3632.
SUPPLEMENTARY INFORMATION:
I. Background
31 CFR Part 356, also referred to as the uniform offering circular,
sets out the terms and conditions for the sale and issuance by the
Department of the Treasury to the public of marketable Treasury bills,
notes, and bonds. The uniform offering circular, in conjunction with
offering announcements, represents a comprehensive statement of those
terms and conditions.1
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\1\ The uniform offering circular was published as a final rule
on January 5, 1993 (58 FR 412). Amendments to the circular were
published on June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR
13906), July 16, 1996 (61 FR 37007), and August 23, 1996 (61 FR
43626).
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The Department has decided to offer a new type of security,
referred to as a Treasury inflation-protection security,2 whose
principal value will be adjusted for inflation as measured by the
United States Government. The Department believes the issuance of these
new inflation-protection securities will reduce interest costs to the
Treasury over the long term and will broaden the types of debt
instruments available to investors in U.S. financial markets.
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\2\ This Part is being revised to accommodate offerings of both
inflation-protection notes and inflation-protection bonds in order
to give the Department the flexibility to issue both types of
inflation-protection securities in the future. However, the
Department initially plans to offer only one maturity for inflation-
protection securities.
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A. Summary
As explained in more detail below, after considering the comments
provided, Treasury has made the following decisions concerning its
offering of inflation-protection securities with the goal of achieving
the broadest market appeal. The inflation-protection securities will be
structured, with some modifications, based on the model of the Real
Return Bonds currently issued by the Government of Canada. The
principal of the security will be adjusted for changes in the level of
inflation. Semiannual interest payments will be made based on a
constant rate of interest determined at auction. The index for
measuring the inflation rate for the inflation-protection securities
will be the non-seasonally adjusted U.S. City Average All Items
Consumer Price Index for All Urban Consumers published monthly by the
Bureau of Labor Statistics of the U.S. Department of Labor.
Further, the Department has decided to begin auctioning 10-year
inflation-protection notes in January 1997 and quarterly thereafter.
Specific terms and conditions of each issue will be announced prior to
each auction. Additional maturities, such as 30-year bonds or 2 to 5-
year notes, are expected to be auctioned later in 1997.
The principal value of the securities will be adjusted semiannually
for inflation by multiplying the stated value at issuance, or par
amount, by an index ratio. The index ratio is the reference CPI
applicable to a particular valuation day divided by the reference CPI
applicable to the original issue date. The inflation adjustment will
not be payable until maturity, when the securities will be redeemed at
their inflation-adjusted principal amount. The securities will be
issued with a stated rate of interest that remains constant until
maturity. Interest payments for a particular security will be
determined by multiplying the inflation-adjusted principal by one half
of the stated rate of interest on each semiannual interest payment
date.
Inflation-protection notes will be issued with maturities of at
least one year but no more than ten years. Inflation-protection bonds
will be issued with maturities of more than ten years. The inflation-
protection securities will be sold at discount, par, or premium and
will pay interest semiannually. The auctions for inflation-protection
securities will be conducted as single-price auctions in which
competitive bidders will bid in terms of a desired real yield (yield
prior to inflation adjustment), expressed as a percentage with three
decimals, e.g., 3.630%. The interest rate established as a result of
the auction will be set at one-eighth of one percent increments that
produce the price closest to, but not above, par when evaluated at the
highest real yield at which bids were accepted. The offering
announcement issued by the Department for each new inflation-protection
security offering will contain the specific details for that offering.
The inflation-protection securities will be eligible for STRIPS
(Separate Trading of Registered Interest and Principal of Securities)
immediately upon their issuance by the Treasury. The securities, and
their related stripped components, will also be eligible to serve as
collateral for Treasury Tax and Loan, Circular 176, and Circular 154
accounts. Anyone interested in the use of inflation-protection
securities, and their related stripped components, for such collateral
purposes should refer to the relevant Financial Management Service
circulars for more information.
B. Participation in Rulemaking Process/Solicitation of Comments
The Department believes that extensive discussion about, and
participant involvement in, the design of the inflation-protection
security is critical and will result in a new investment product that
will have wider acceptance and broader market appeal.
[[Page 50925]]
In developing the structure and design features of the inflation-
protection security, the Department used a wide variety of approaches
to obtain the views of potential investors and market participants. It
issued an Advance Notice of Proposed Rulemaking (ANPR) on May 20,
1996.3 The ANPR stated the Department's intention to issue a new
type of marketable book-entry security with a nominal return linked to
the inflation rate, addressed several approaches and issues to be
considered in developing the features of the security and the terms and
conditions for its sale to the public, and solicited comments and
suggestions. Specifically, the Treasury sought comments concerning the
choice of inflation index, structure of the security, auction
technique, offering sizes, and maturities. Comments were also solicited
on any other issues that would be relevant to the issuance of a
Treasury marketable inflation-protection security.
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\3\ 61 FR 25164 (May 20, 1996).
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The original 30-day public comment period on the ANPR was
subsequently extended through July 3, 1996,4 to allow for the
submission of additional views and suggestions. On July 24, 1996 the
Department held a public symposium, announced through an additional
ANPR,5 to discuss the advantages and disadvantages of certain
proposed security structures under consideration. In addition to
announcing this symposium to discuss the proposed features, the second
ANPR posed additional specific questions regarding the proposed
features and requested written comments in response.
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\4\ 61 FR 31072 (June 19, 1996).
\5\ 61 FR 38127 (July 23, 1996).
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Since announcing Treasury's intention to issue inflation-protection
securities in May 1996, the Department staff has also held more than 30
meetings with more than 800 investors, dealers, and other interested
parties in Washington, D.C., New York, Boston, Chicago, San Francisco,
London, and Tokyo, and by teleconference with Melbourne and Sydney.
These meetings provided forums for exchanges of ideas and opinions, and
for interested parties to provide their views on the proposed new
security. In developing the design and structural terms of the
inflation-protection security and the proposed rule, Department staff
has also spoken and consulted with various government officials and
market participants in Canada, the United Kingdom, and Australia,
countries that currently issue inflation-indexed securities, to gather
information on their respective countries' experience with this type of
security.
II. Consultation and Comments
A. Introduction
The Department has received 55 comment letters, summarized herein,
in response to the two ANPRs. The letters and comments were submitted
by a wide range of individuals, academicians, investment management
firms, dealers and institutional investors. Specifically, 6 letters
were received from trade, legal and/or research organizations; 11
letters from primary government securities dealers; 7 letters from
finance and economics professors; 20 letters from commercial banking,
advisory, and institutional and individual investment management firms;
and 11 letters from individual investors.6 In addition, the
Department received numerous comments and suggestions from the investor
meetings.
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\6\ Several commenters submitted more than one letter, with each
letter counted separately in arriving at the total count of 55
letters. All of the comment letters and summaries of the investor
meetings are available to the public.
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While spanning a wide spectrum, with a few commenters not
supporting the issuance of an inflation-indexed security, the
overwhelming majority of commenters favored and supported the issuance
of such a marketable security. A few letters suggested that a non-
marketable security, such as a modified U.S. Savings Bond, might be a
better inflation-protection investment vehicle.
The comments, while varied, expressed several consistent and
reoccurring themes. These themes included the need for simplicity in
structure and ease in understanding, the need for liquidity in the
issues of inflation-protection securities, and a preference to have the
new security conform as much as possible to Treasury's currently issued
securities (e.g., use the same auction technique). Generally, there was
a desire to avoid the introduction of a security that would differ
widely from current market patterns and practices.
The Department has carefully considered all of the comments that
were received. While the written comments are summarized below, each
comment letter did not necessarily address all aspects of the proposed
new security for which comments were solicited. The comments have been
summarized and organized into the following five basic categories: the
choice of inflation index, the type of structure, taxation issues,
auction technique and initial offering amounts, and maturities.
B. Choice of Inflation Index
Many commenters discussed the advantages and disadvantages of the
various potential indices that could be used to measure inflation,
including the indices on which the Department specifically requested
comments: the Consumer Price Index for All Urban Consumers (CPI-U), the
core CPI (the CPI-U minus the food and energy components of the CPI-U),
the Gross Domestic Product (GDP) deflator, and the Employment Cost
Index (ECI). Comments were also requested on whether a seasonally or
non-seasonally adjusted series would be preferred. The letters
indicated a clear consensus that the selected index should be:
recognized widely, published frequently, accurate, easily obtainable,
easily understood, and not revised retroactively. While each index had
some support, the vast majority of those who commented on the index
selection advocated that the Consumer Price Index (CPI-U) would be the
most appropriate index. Many of those who recommended using the CPI-U
noted that it measures the price changes for the market basket of goods
and services that most investors are concerned about. Additionally,
they noted that it is most similar to the indices used by other
countries that currently issue indexed debt, and thus would facilitate
understanding the terms of the security.
C. Structure
The ANPRs proposed several structures and design features on which
an inflation-protection security could be modelled. These models
included: (1) A Canadian-style structure, which is a modification of
the United Kingdom's index-linked gilts, in which interest is paid
semiannually and the principal amount is adjusted for inflation, so
that the inflation-adjusted principal and interest payments remain the
same in constant dollars; (2) a zero-coupon structure; (3) a structure
that would pay out principal and interest in periodic intervals,
similar to a price level adjusted mortgage; and (4) a current-pay
structure where all the inflation compensation and real interest is
paid out semiannually. Aside from the commenters' opinions on the
choice of index, the discussion of possible structures and security
design features generated the most discussion and reaction since this
decision would directly affect such issues as liquidity, when income is
paid, investor appeal and preference, and cost of issuance to Treasury.
All of the proposed structures were commented on, with at least one
[[Page 50926]]
commenter supporting each structure. However, the one structure that
was discussed the most and was supported by the majority of commenters
was the one modelled on the Real Return Bonds currently issued by the
Government of Canada.
After the first ANPR was published, some commenters at the investor
meetings suggested that a fourth alternative, the current-pay
structure, be considered. Therefore, a second ANPR was published to
solicit views on this alternative and to determine which of these
structures commenters preferred. In response to the second ANPR, the
majority of commenters still preferred the Canadian structure.
Many commenters expressed the view that inflation-protection
securities should be eligible for stripping as soon as possible,
preferably beginning with the first issue, since stripping would meet
market demand for different maturities which would effectively provide
for a full term structure of real interest rates. It was generally
believed that the Canadian structure would make stripping easier.
There was strong support for reopenings of these securities with a
general belief that reopenings would be important for market liquidity
and thus would lower Treasury's borrowing costs. Several commenters
favored reopenings to prevent market problems due to shortages in an
issue. Other commenters believed that the interest paid on the
security, rather than the principal amount, should be indexed to the
CPI, essentially providing for a floating-rate security. The majority
of commenters, however, said they would prefer a Canadian-style
security over the current-pay structure.
D. Taxation
The subject of taxation on income earned on the securities was
addressed by many respondents. Several advocated that only the interest
actually paid should be taxable in the year received, while the
inflation adjustment, if accrued rather than paid, should be taxable
when actually received by the investor. There was much discussion about
whether or not the taxation of the inflation adjustment might reduce
demand by non-tax-advantaged investors and that, with the proposed tax
treatment, primarily tax-advantaged investors would be initial
purchasers and holders of these securities. Other commenters advocated
that, regardless of the tax treatment, the tax rules should be easy to
understand and administer. Others stated that any inflation adjustment
payments should not be taxed.
E. Auction Technique and Initial Offering Amounts
Several commenters addressed the proposed auction technique. As
stated in the first ANPR, Treasury proposed that a single-price auction
format be adopted with three different bidding options given for
consideration. The comments overwhelmingly favored an auction technique
with which the market is familiar. These commenters supported the use
of the single-price auction format with competitive bids expressed on a
real yield basis. The majority of the commenters recommended that
interest rates be set in one-eighth of one percent increments that
would result in a price at or just below par. Several of these
commenters believed this would simplify stripping and facilitate
reopenings of the issue. The auction processes recommended by the
commenters essentially conform to those techniques currently employed
by the Department.
The Department also requested comments on the appropriate size of
the initial offering amounts of the auctions and stated its intention
to increase the offering sizes over time. Commenters generally
supported issues with offering amounts in the $2-$5 billion range,
increased over time through reopenings.
In the first ANPR, comments were solicited on whether the Treasury
should announce, prior to an auction of an inflation-protection
security, that it retains, and may exercise, the option to award an
amount greater or less than the announced public offering amount. Those
commenters who addressed this issue stated that, while they
acknowledged Treasury's right to award more or less than the announced
public offering amount, such right should be exercised only under
extreme circumstances. A general view was that awarding more or less
than the stated offering amount would be inconsistent with Treasury's
long-standing policy of regular and predictable debt issuance and would
contribute to market uncertainty.
F. Maturities
The subject of which maturities the Department should offer
resulted in a large number of comments. The ANPR had proposed
maturities of either 10 or 30 years. Those who attended the investor
meetings, in general, preferred an intermediate-term security, such as
a 10-year note, indicating that a 30-year maturity would be too long
for the probable investors in this type of security. Some of the
written comments stated that the issuance of an inflation-protection
security should initially be in the 10-year range, with a 30-year bond
being included later on a regular basis. Others advocated the reverse
pattern, with an initial 30-year bond issuance followed by a 10-year
note. Several of the letters recommending a longer-term maturity stated
that, through stripping, any investor demand for shorter-term
inflation-protection securities could be met. Some argued that 10-30
years would be too long. Some also commented that, with limited
knowledge of investor preferences prior to implementation of these new
securities, some experimentation with different maturity sectors would
be appropriate.
Several commenters expressed an interest in a shorter-term
security, such as one with a 2-5 year maturity. Some commenters
expressed the view that a broad range of maturities covering the short,
intermediate, and long ends of the maturity spectrum, or a variation
that would provide for a series of maturities in 5-year intervals,
should be provided to promote liquidity and meet demand by investors
with various maturity horizons.
Some commenters believed that, regardless of the maturities
selected, inflation-protection securities should be auctioned at the
same time as Treasury's fixed-principal securities with the same, or
similar, maturities, believing that this would result in better pricing
and liquidity. Others took the opposite view and recommended that the
auctions not be part of the quarterly refundings because of the already
large amounts of Treasury securities that are auctioned at those times.
G. Other
Additional comments expressed support for the development of
futures and other derivative instruments to ensure a deep and liquid
market; opposition to a minimum payment guarantee in the belief that
this might put downward pressure on the security's price over time; and
the need to disclose potential market or interest rate risk to all
investors, particularly retail investors, who otherwise might not be
aware that there could be a period of negative real return.
III. Section-by-Section Analysis
Based largely on the comments received in response to the ANPRs and
the feedback obtained in the various investor meetings, the Department
has decided to issue inflation-protection securities similar to the
Real Return Bonds issued by the Government of Canada. The proposed
securities also are more similar to inflation-indexed securities that
have been issued in other
[[Page 50927]]
countries, such as the United Kingdom, than they are to the other
alternative structures presented in the ANPRs. Under the Canadian
structure, the principal amount of the security is adjusted for
inflation so that the adjusted value remains the same in constant
dollars. The interest rate remains fixed throughout the life of the
security, and interest payments are based on the security's inflation-
adjusted principal at the time the interest is paid.
The Department believes that the similarity of the proposed
structure to inflation-indexed securities issued by other countries is
a positive feature. Since many investors are already familiar with this
structure, the liquidity of the security on a global basis may be
enhanced. In addition, the two structures presented in the ANPRs that
would have provided greater cash flows (i.e., paying out the inflation
adjustment of the principal and/or interest at periodic intervals)
during the period the security was outstanding were not selected
because they would have been more complicated and would have carried
more reinvestment risk than the Canadian model securities. The other
structure presented in the first ANPR, a zero-coupon inflation-indexed
security, is being accommodated by making the inflation-protection
securities eligible for stripping in the commercial book-entry system,
i.e., TRADES (Treasury/Reserve Automated Debt Entry System),
immediately upon issuance.
Of the price or wage indices under consideration, the non-
seasonally adjusted CPI-U was selected because it is the best known and
most widely accepted measure of inflation. This index was also the
choice of a substantial majority of commenters to the ANPRs.
Commenters also advocated using the same auction process (e.g.,
bidding procedures) for inflation-protection securities that is
currently used for other marketable Treasury securities. Accordingly,
Treasury has decided to use a single-price auction, with bidding on the
basis of real yield, expressed with three decimals. The interest rate
will be set at the one-eighth of one percent increment that produces
the price closest to, but not more than, par when evaluated at the
highest real yield awarded to competitive bidders.
As is the case with all marketable Treasury securities, the size
and specific terms of the initial issue of the inflation-protection
security will be announced shortly before the first auction. The
Treasury intends to begin by issuing 10-year inflation-protection notes
on January 15, 1997, and on a quarterly basis thereafter (i.e., the
15th of April, July, October and January). Additional maturities are
expected to be auctioned within a year of the first auction of 10-year
notes.
This proposed amendment, when finalized, would make the necessary
revisions to accommodate the sale and issuance of marketable book-entry
Treasury inflation-protection securities. This rule would amend
Secs. 356.2, 356.3, 356.5, 356.10, 356.12, 356.13, 356.17, 356.20,
356.25, 356.30, 356.31, 356.32, Appendix B, and Exhibit A of the
uniform offering circular. This rule also would create two new
appendices--Appendix C and Appendix D.
A. Definitions
Specifically, the terms ``business day,'' ``Consumer Price Index,''
``daily interest decimal,'' ``index,'' ``index ratio,'' ``inflation-
adjusted principal,'' ``real yield'' and ``reference CPI'' have been
added to the listing of definitions in Sec. 356.2.
Several other definitions have been slightly modified to
incorporate minor conforming changes. For instance, the definition of
``book-entry security'' has been modified by adding a sentence
referencing the two systems in which marketable Treasury book-entry
securities may be held--TRADES and TREASURY DIRECT. Also, the
definition of ``par amount'' has been modified slightly to indicate
that the term refers to the stated value of a security at original
issuance (i.e., the date from which interest accrues). The meaning of
the term, however, essentially remains unchanged. For example, for
Treasury bills and fixed-principal securities, the par amount still is
the principal amount to be paid at maturity. For inflation-protection
securities, par amount does not include an inflation adjustment after
issuance. Further, par amount refers to the amount at which all
marketable Treasury securities (including inflation-protection
securities) will be maintained and transferred in TRADES or TREASURY
DIRECT.
The definition of ``settlement amount'' also has been modified to
indicate that, for inflation-protection securities, such amount
includes an inflation adjustment, if any. This could happen in the case
of reopenings or when the date interest begins to accrue is different
from the actual issue date. For fixed-principal securities, the
definition of settlement amount is unchanged. Readers should refer to
Appendix B, Section III, for examples of settlement amount computations
for inflation-protection securities.7
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\7\ The examples in Appendix B, Section II, pertaining to price
computations for fixed-principal securities do not include
settlement amount calculations. However, settlement amounts in those
examples can be derived by multiplying the price in terms of a
percentage of par by the awarded par amount and by adding to that
amount any accrued interest.
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B. Conforming Changes
Changes have been made to Sec. 356.3 to reflect more completely the
operation of TRADES. In this system, marketable Treasury book-entry
securities are held through a tiered system of ownership, and Treasury
discharges its payment obligation when payment is credited to a
person's or entity's account maintained at a Federal Reserve Bank. The
system is described in Treasury's rules for Treasury securities held in
TRADES.8 The changes to Sec. 356.3 also clarify Treasury's payment
obligation with respect to Treasury securities held in the TREASURY
DIRECT system. This section has also been modified to note that
inflation-protection securities are maintained and transferred at their
par amount in both systems. Adjustments for inflation are not included
in the par amount.
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\8\ 61 FR 43626 (August 23, 1996).
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In Sec. 356.5, the description of Treasury securities has been
modified to distinguish between Treasury securities with fixed-
principal amounts and those whose principal amounts will be adjusted
for inflation. The Department will nonetheless continue to refer to
securities with a fixed-principal amount as ``Treasury notes'' or
``Treasury bonds'' in official Treasury publications, such as the
offering announcement and auction results press release, as well as in
auction systems. Securities whose principal amounts will be adjusted
for inflation will be referred to as ``Treasury inflation-protection
notes'' or ``Treasury inflation-protection bonds.'' New paragraphs
(b)(2) and (c)(2) provide a brief description of such inflation-
protection securities.
In paragraph 356.12(a), a change has been made to clarify that, for
reopenings of all securities, bidding will be in terms of par amount.
It is noted, however, that in the case of reopenings of inflation-
protection securities, the par amount of awarded bids will be
multiplied by the applicable index ratio for the additional (reopening)
issue date to determine the settlement amount. Treasury will provide
this index ratio in the offering announcement for the reopened
security. Readers are referred to Appendix B, Section III, Paragraph B
of the proposed rules for an example that
[[Page 50928]]
illustrates how bids are to be submitted and how the settlement amount
will be calculated for a reopening of an inflation-protection security.
A modification has been made to paragraph 356.12(b)(2) under
``additional restrictions'' to bidding in auctions. This modification
clarifies that a noncompetitive bid cannot be made by any bidder who
has held, at any time between the offering announcement and the closing
time for receipt of competitive tenders, a position in when-issued
trading or in futures or forward contracts in the security being
auctioned. This clarifying change is consistent with Treasury's current
application of this provision of the uniform offering circular.
In Sec. 356.13, changes have been made to highlight the fact that
the net long position reporting threshold amount will always be
provided in the offering announcement for each security. This is
consistent with Treasury's current practice. The net long position
reporting threshold will continue to be $2 billion for bills, notes,
and bonds unless otherwise stated in the offering announcement. For
example, the Department anticipates that the net long position
reporting threshold for smaller securities offerings, such as initial
offerings of inflation-protection securities and certain cash
management bills, may be lower than $2 billion. As is currently the
case, the provisions of the offering announcement control whenever any
provision of the offering announcement is inconsistent with any
provision of the uniform offering circular. (See 31 CFR Sec. 356.10.)
Paragraphs 356.17(a) and (b) contain minor conforming
clarifications to reflect that bidders submitting payment with their
tender may have to include, in addition to announced accrued interest,
an inflation-adjustment amount with their payment.
In Sec. 356.20, paragraph (c)(2) has been expanded to clarify that,
for inflation-protection securities, the price for securities awarded
to competitive and noncompetitive bidders reflects the highest real
yield at which bids were accepted.
No changes have been made to the current $500 million customer
confirmation threshold in Sec. 356.24(d). Thus, any customer awarded a
par amount of $500 million or more of an inflation-protection security
is required to furnish to the Federal Reserve Bank to which the bid was
submitted a confirmation of its bid and net long position, if any. As
with the net long position threshold, if the Department modifies the
customer confirmation threshold for any particular auction, the revised
customer confirmation threshold will be stated in the offering
announcement for that auction, and the offering announcement will
govern.
A conforming change has been made to paragraph 356.25(a)(2) to
state that additional amounts due at settlement may include inflation
adjustments. Additionally, a new paragraph (c) has been added to
Sec. 356.25 to provide that the payment amount for awarded securities
will be the settlement amount, as that term is defined in Sec. 356.2.
The last sentence in Sec. 356.30(a) has been modified to reflect
that the term ``business day'' has been added as a defined term to
Sec. 356.2.
A new paragraph (b) has been added to Sec. 356.30 to guarantee an
investor's par amount of inflation-protection securities. If at
maturity the inflation-adjusted principal is less than the par amount
of the security, an additional amount will be paid at maturity so that
the additional amount plus the inflation-adjusted principal equals the
par amount. However, interest payments will always be based on the
inflation-adjusted principal.
New paragraphs (c), (d), (e), and (f) have been added to
Sec. 356.31 to provide separate descriptions of principal and interest
components stripped from fixed-principal and inflation-protection
securities. Paragraphs (d) and (f), respectively, distinguish between
interest components stripped from fixed-principal securities and
interest components stripped from inflation-protection securities in
regard to their ``fungibility.'' Interest components having the same
maturity date that have been stripped from fixed-principal securities
are fungible (i.e., have the same CUSIP number) regardless of the
underlying security from which the interest payments were stripped.
Interest components stripped from inflation-protection securities,
however, will not be fungible with interest components stripped from
other inflation-protection or fixed-principal securities, even if they
have the same maturity date. Making interest components of inflation-
protection securities fungible is not practical because the amount of a
particular interest payment for such securities reflects in part the
reference CPI for the issue date of that security. Different underlying
inflation-protection securities will have different issue dates with
different reference CPI numbers. However, Treasury has the ability to
increase the amount outstanding of these non-fungible stripped
components through reopenings of the underlying inflation-protection
securities.
Section 356.31 also has been revised to distinguish between
principal components stripped from fixed-principal and inflation-
protection securities, which are maintained and transferred in TRADES
at their par amount, and interest components stripped from fixed-
principal and inflation-protection securities, which are maintained and
transferred in TRADES at their original payment value. This value is
derived by applying the semiannual interest rate to the par amount. For
inflation-protection securities, the amounts maintained and transferred
in TRADES are different from the actual value of the principal and
interest components as adjusted for inflation. For stripped principal
components of inflation-protection securities, the holder will receive
the inflation-adjusted principal value or the par amount, whichever is
greater, at maturity. For stripped interest components of these
securities, the amount payable to the holder will be derived by
applying the semiannual interest rate to the inflation-adjusted
principal of the underlying security.
Section 356.32 has been reorganized. Paragraph (a) provides a
general taxation provision applicable to all marketable Treasury
securities. Paragraph (b) applies only to inflation-protection
securities. It directs investors to the relevant Internal Revenue
Service (IRS) regulations that will be published concurrently with the
final rule amending the uniform offering circular for further
information about the tax treatment and reporting of inflation-
protection securities. From the publication date of this proposed
amendment to the uniform offering circular until the date of issuance
of the final rule, investors are advised to refer to IRS Notice 96-51
published in the Internal Revenue Bulletin 1996-42 (October 15, 1996)
for information regarding taxation of inflation-protection securities
and the stripped components of such securities. Additionally,
concurrent with the filing of these proposed rules, Treasury is issuing
a statement providing a more detailed explanation of the federal income
tax treatment for inflation-protection securities and stripped
components thereof. Readers interested in receiving a copy of this
statement should call the Department's Public Affairs automated
facsimile system at 202-622-2040. After issuance of the final uniform
offering circular amendment, investors are advised to refer to the
applicable proposed and temporary regulations issued under
Secs. 1275(d) and 1286 of the Internal
[[Page 50929]]
Revenue Code. In the preamble to the final amendment to the uniform
offering circular rules, the Department will reference the Federal
Register and Code of Federal Regulations citations for the IRS
regulations, as available.
Minor revisions have been made to existing paragraphs A through D
of Appendix B, Section I, by redesignating the paragraphs as numerical
subparagraphs and inserting the term ``Treasury fixed-principal
securities'' at the beginning (as paragraph A) to clarify that these
paragraphs relate specifically to fixed-principal notes and bonds, not
inflation-protection securities. A new paragraph B has been added to
Section I of Appendix B that describes and illustrates with an example
how the principal value of an inflation-protection security will be
adjusted for inflation, how interest payments will be calculated, and
how the index ratio for a particular date will be calculated. Unlike
paragraph A, which includes examples of short and long interest
payments, paragraph B provides only an example of regular half-year
interest payments since Treasury does not anticipate short and long
interest payments for Treasury inflation-protection securities.
Treasury does not intend to publish the index ratio or any
reference CPIs since market participants should be able to make the
computations themselves. However, Treasury requests comments on whether
or not a monthly publication of the daily index ratios or reference
CPIs would be useful to market participants. The Treasury will issue a
press release monthly that will provide the non-seasonally adjusted CPI
for each of the prior three months. Treasury intends to provide this
information through media such as the Internet, telephone recordings,
and TAAPS (Treasury Automated Auction Processing System). The monthly
CPI numbers are also available from the Bureau of Labor Statistics of
the U.S. Department of Labor.
Paragraph B of Section I also explains what Treasury's course of
action will be if, while an inflation-protection security is
outstanding, the index is revised, rebased to a different year, not
reported, or discontinued. The procedures are the same as those
originally stated in the first ANPR. If a previously reported CPI is
revised, Treasury will continue to use the previously reported CPI in
calculating the inflation-adjusted principal and interest payments. If
the CPI is rebased to a different year, Treasury will continue to use
the CPI based on the base reference period in effect when the security
was first issued, as long as that CPI continues to be published. The
specific CPI-U series for each inflation-protection security will be
provided in the Treasury offering announcement. If the CPI is
discontinued or substantially altered while an inflation-protection
security is outstanding, Treasury will consult with the Bureau of Labor
Statistics or its successor agency to determine an appropriate
substitute index and methodology for linking the two series. Treasury
would then notify the public of the substitute index and methodology.
For new issues of Treasury inflation-protection securities, if the
Federal Government commences publication of an index that is more
accurate or otherwise more appropriate for indexation than the Consumer
Price Index, Treasury would also notify the public. Moreover, the
uniform offering circular would be amended, as appropriate, to reflect
changes in the use of the index.
The previous paragraph E to Section I of Appendix B has been
redesignated as paragraph C and expanded to include a description of
the accrued interest payable calculation for an inflation-protection
security if accrued interest covers a fractional portion of the first
full half-year period.
Minor changes have been made to paragraphs A through G of Appendix
B, Section II, to reflect their applicability solely to fixed-principal
securities. A disclaimer has been added near the beginning of Appendix
B to clarify that any numbers in the examples are provided only for
illustrative purposes and are not intended to be predictions of
interest rates for Treasury securities. In addition, a statement
regarding intermediate rounding used in the examples has been moved
toward the beginning of Appendix B.
A new Section III has been included in Appendix B to illustrate the
calculation of the settlement amount for inflation-protection
securities with a regular first interest payment period and to
illustrate the calculation of the settlement amount, including
predetermined accrued interest and inflation adjustment, of a reopened
inflation-protection security. Accompanying definitions have also been
added.
A new Appendix C containing investment considerations for
inflation-protection securities has been added because of the unique
factors facing prospective investors in this new security.
A new Appendix D has been added to provide a description of the
Consumer Price Index for All Urban Consumers.
Finally, a new Section IV has been added to Exhibit A that provides
an example of an offering announcement press release by the Treasury to
the public for an inflation-protection security. The press release
includes accompanying highlights.
IV. Procedural Requirements
This proposed rule does not meet the criteria for a ``significant
regulatory action'' pursuant to Executive Order 12866.
Although this rule is being issued in proposed form to secure the
benefit of public comment, the notice and public procedures
requirements of the Administrative Procedure Act are inapplicable,
pursuant to 5 U.S.C. 553(a)(2).
Since no notice of proposed rulemaking is required, the provisions
of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.
There is no new collection of information contained in this
proposed rule, and, therefore, the Paperwork Reduction Act does not
apply. The collections of information of 31 CFR Part 356 have been
previously approved by the Office of Management and Budget under
section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35) under control number 1535-0112. Under this Act, an agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless it displays a valid OMB control
number.
List of Subjects in 31 CFR Part 356
Bonds, Federal Reserve System, Government securities, Securities.
Dated: September 23, 1996.
Donald V. Hammond,
Deputy Fiscal Assistant Secretary.
For the reasons set forth in the preamble, 31 CFR Chapter II,
Subchapter B, Part 356, is proposed to be amended as follows:
PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS,
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT
SERIES NO. 1-93)
1. The authority citation for part 356 continues to read as
follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.
2. Section 356.2 is amended by revising the definitions of
``Accrued interest,'' ``Book-entry security,'' ``Customer,'' ``Interest
Rate,'' ``Multiple-price auction,'' ``Par amount,'' ``Settlement
amount,'' ``STRIPS,'' and ``Yield;'' and adding in alphabetical order
the definitions of ``Business day,''
[[Page 50930]]
``Consumer Price Index,'' ``Daily interest decimal,'' ``Index,''
``Index ratio,'' ``Inflation-adjusted principal,'' ``Real yield,'' and
``Reference CPI'' to read as follows:
Sec. 356.2 Definitions.
* * * * *
Accrued interest means an amount payable to the Department for such
part of the next semiannual interest payment that represents interest
income attributed to the period prior to the date of issue. (See
Appendix B, Section I, Paragraph C.)
* * * * *
Book-entry security means a security the issuance and maintenance
of which are represented by an accounting entry or electronic record
and not by a certificate. Treasury book-entry securities may generally
be held in either TRADES or in TREASURY DIRECT. (See Sec. 356.3.)
Business day means any day other than a Saturday, Sunday, or other
day on which the Federal Reserve Banks are not open for business.
* * * * *
Consumer Price Index (CPI) means the non-seasonally adjusted U.S.
City Average All Items Consumer Price Index for All Urban Consumers,
published by the Bureau of Labor Statistics of the Department of Labor.
(See Appendix D.)
* * * * *
Customer means a bidder on whose behalf a depository institution or
dealer has been directed to submit or forward a competitive or
noncompetitive bid for a specified amount of securities in a specific
auction. Only depository institutions and dealers may submit or forward
bids for customers, whether directly to a Federal Reserve Bank or the
Bureau of the Public Debt, or through an intermediary depository
institution or dealer.
Daily interest decimal means, for a fixed-principal security, the
interest factor attributable to one day of an interest payment period
per $1,000 par amount.
* * * * *
Index means the Consumer Price Index, which is used as the basis
for making adjustments to principal amounts of inflation-protection
securities. (See Appendix D.)
Index ratio means, for any particular date and any particular
inflation-protection security, the Reference CPI applicable to such
date divided by the Reference CPI applicable to the original issue date
(or dated date, when the dated date is different from the original
issue date). (See Appendix B, Section I, Paragraph B.)
Inflation-adjusted principal means, for an inflation-protection
security, the value of the security derived by multiplying the par
amount by the applicable index ratio as described in Appendix B,
Section I, Paragraph B.
Interest rate means the annual percentage rate of interest paid on
the par amount or the inflation-adjusted principal of a specific issue
of notes or bonds. (See Appendix B for methods and examples of interest
calculations on notes and bonds.)
* * * * *
Multiple-price auction means an auction in which each successful
competitive bidder pays the price equivalent to the yield or rate that
it bid.
* * * * *
Par amount means the stated value of a security at original
issuance.
* * * * *
Real yield means, for an inflation-protection security, the yield
based on the payment stream in constant dollars, i.e., before
adjustment by the index ratio.
Reference CPI (Ref CPI) means, for an inflation-protection
security, the index number applicable to a given date. (See Appendix B,
Section I, Paragraph B.)
* * * * *
Settlement amount means the par amount of securities awarded less
any discount amount and plus any premium amount and/or any accrued
interest. For inflation-protection securities, the settlement amount
also includes any inflation adjustment when such securities are
reopened or when the dated date is different from the issue date.
* * * * *
STRIPS (Separate Trading of Registered Interest and Principal of
Securities) means the Department's program under which eligible
securities are authorized to be separated into principal and interest
components, and transferred separately. These components are maintained
in book-entry accounts, and transferred, in TRADES.
* * * * *
Yield, also referred to as ``yield to maturity,'' means the
annualized rate of return to maturity on a fixed-principal security
expressed as a percentage. For an inflation-protection security, yield
means the real yield. (See Appendix B.)
3. Section 356.3 is amended by revising the introductory paragraph
and the heading of paragraph (a) and removing footnote 1; adding three
sentences at the end of paragraph (a); and adding a second sentence at
the end of paragraph (b), to read as follows:
Sec. 356.3 Book-entry securities and systems.
Securities issued subject to this Part shall be held and
transferred in either of the two book-entry securities systems--TRADES
or TREASURY DIRECT--described in this section. Securities are
maintained and transferred, to the extent authorized in 31 CFR 357, in
these two book-entry systems at their par amount, e.g., for inflation-
protection securities, adjustments for inflation will not be included
in this amount. Securities may be transferred from one system to the
other in accordance with Treasury regulations governing book-entry
Treasury bills, notes, and bonds. See Department of the Treasury
Circular, Public Debt Series No. 2-86, as amended (31 CFR Part 357).
(a) Treasury/Reserve Automated Debt Entry System (TRADES). * * *
For accounts maintained in TRADES, Treasury discharges its payment
obligations when payment is credited to the applicable account
maintained at a Federal Reserve Bank or payment is made in accordance
with the instructions of the person or entity maintaining such account.
Further, neither Treasury nor the Federal Reserve Banks have any
obligations to, nor will they recognize any claims of, any person or
entity that does not have an account at a Federal Reserve Bank. In
addition, neither Treasury nor the Federal Reserve Banks will recognize
the claims of any person or entity with respect to any accounts not
maintained at a Federal Reserve Bank.
(b) * * * In TREASURY DIRECT, Treasury discharges its payment
obligations when payment is made to a depository institution for credit
to the account specified by the owner of the security, or when payment
is made in accordance with the instructions of the owner of the
security.
* * * * *
4. Section 356.5 is amended by revising the introductory text and
paragraphs (b) and (c) to read as follows:
Sec. 356.5 Description of securities.
Securities offered pursuant to this Part are offered exclusively in
book-entry form and are direct obligations of the United States, issued
under Chapter 31 of Title 31 of the United States Code. The securities
are subject to the terms and conditions set forth in this Part,
including the appendices, as well as the regulations governing book-
entry Treasury bills, notes, and bonds (31 CFR Part 357), and the
offering announcements, all to the extent applicable. When the
Department issues additional securities with the same CUSIP number as
outstanding
[[Page 50931]]
securities, all securities with the same CUSIP number are considered
the same security.
* * * * *
(b) Treasury notes--(1) Treasury fixed-principal \1\ notes.
Treasury fixed-principal notes are issued with a stated rate of
interest to be applied to the par amount, have interest payable
semiannually, and are redeemed at their par amount at maturity. They
are sold at discount, par, or premium, depending upon the auction
results. They have maturities of at least one year, but not more than
ten years.
---------------------------------------------------------------------------
\1\ The term ``fixed-principal'' is used in this Part to
distinguish such securities from ``inflation-protection''
securities. Fixed-principal notes and fixed-principal bonds are
referred to as ``notes'' and ``bonds'' in official Treasury
publications, such as offering announcements and auction results
press releases, as well as in auction systems.
---------------------------------------------------------------------------
(2) Treasury inflation-protection notes. Treasury inflation-
protection notes are issued with a stated rate of interest to be
applied to the inflation-adjusted principal on each interest payment
date, have interest payable semiannually, and are redeemed at maturity
at their inflation-adjusted principal, or at their par amount,
whichever is greater. They are sold at discount, par, or premium,
depending upon the auction results. They have maturities of at least
one year, but not more than ten years. (See Appendix B for price and
interest payment calculations and Appendix C for Investment
Considerations.)
(c) Treasury bonds--(1) Treasury fixed-principal bonds. Treasury
fixed-principal bonds are issued with a stated rate of interest to be
applied to the par amount, have interest payable semiannually, and are
redeemed at their par amount at maturity. They are sold at discount,
par, or premium, depending upon the auction results. They typically
have maturities of more than ten years.
(2) Treasury inflation-protection bonds. Treasury inflation-
protection bonds are issued with a stated rate of interest to be
applied to the inflation-adjusted principal on each interest payment
date, have interest payable semiannually, and are redeemed at maturity
at their inflation-adjusted principal, or at their par amount,
whichever is greater. They are sold at discount, par, or premium,
depending upon the auction results. They typically have maturities of
more than ten years. (See Appendix B for price and interest payment
calculations and Appendix C for Investment Considerations.)
5. Section 356.10 is amended by adding a sentence at the end of the
paragraph, before the parenthetical last sentence, to read as follows:
Sec. 356.10 Offering announcement.
* * * Accordingly, bidders should read the applicable offering
announcement in conjunction with this Part. * * *
6. Section 356.12 is amended by revising the first sentence of
paragraph (a); revising paragraphs (b)(2), (c)(1) (i) and (ii); and
adding new paragraph (c)(1)(iii) to read as follows:
Sec. 356.12 Noncompetitive and competitive bidding.
(a) General. All bids, including bids for reopenings, must state
the par amount of securities bid for and must equal or exceed the
minimum bid amount stated in the offering announcement. * * *
(b) * * *
(2) Additional restrictions. A bidder may not bid noncompetitively
for its own account if, in the security being auctioned, it holds or
has held a position in when-issued trading or in futures or forward
contracts at any time between the date of the offering announcement and
the designated closing time for the receipt of competitive tenders. * *
*
(c) * * *
(1) * * *
(i) Treasury bills. A competitive bid must show the discount rate
bid, expressed with two decimals, e.g., 3.10. Fractions may not be
used.
(ii) Treasury fixed-principal securities. A competitive bid must
show the yield bid, expressed with three decimals, e.g., 4.170.
Fractions may not be used.
(iii) Treasury inflation-protection securities. A competitive bid
must show the real yield bid, expressed with three decimals, e.g.,
3.070. Fractions may not be used.
* * * * *
7. Section 356.13 is amended by revising paragraph (a) to read as
follows:
Sec. 356.13 Net long position.
(a) Reporting net long positions. When bidding competitively, a
bidder must report the amount of its net long position when the total
of all of its bids in an auction plus the bidder's net long position in
the security being auctioned equals or exceeds the net long position
reporting threshold amount. The threshold amount for any particular
security will be as stated in the offering announcement for that
security. (See Sec. 356.10.) That amount will be $2 billion for bills,
notes, and bonds unless otherwise stated in the offering announcement.
For example, the net long position reporting threshold amount may be
less than $2 billion for smaller security offerings, e.g., certain
inflation-protection securities or cash management bills. If the bidder
either has no position or has a net short position and the total of all
of its bids equals or exceeds the threshold amount, e.g., $2 billion, a
net long position of zero must be reported. * * *
* * * * *
8. Section 356.17 is amended by revising the last sentence in the
introductory paragraph and the introductory text of paragraphs (a) and
(b) to read as follows:
Sec. 356.17 Responsibility for payment.
* * * The specific requirements, outlined in this section, depend
on whether awarded securities will be delivered in TREASURY DIRECT or
TRADES.
(a) TREASURY DIRECT. For securities to be held in TREASURY DIRECT,
payment of the par amount and announced accrued interest and/or
inflation adjustment, if any, must be submitted with the tender unless
other provision has been made, such as provision for payment by charge
to the funds account of a depository institution.
* * * * *
(b) TRADES. For securities to be held in TRADES, payment of the par
amount and announced accrued interest and/or inflation adjustment, if
any, must be submitted with the tender unless provision has been made
for payment by charge to the funds account of a depository institution.
* * * * *
9. Section 356.20 is amended by revising the introductory text of
paragraph (c) and adding a sentence to the end of paragraph (c)(2) to
read as follows:
Sec. 356.20 Determination of auction awards.
* * * * *
(c) Determining purchase prices for awarded securities. Price
calculations will be rounded to three decimal places on the basis of
price per hundred, e.g., 99.954. (See Appendix B.)
* * * * *
(2) * * * For inflation-protection securities, the price of such
securities will be the price equivalent to the highest real yield at
which bids were accepted.
10. Section 356.25 is amended by revising the last sentence in
paragraph (a)(2), and adding paragraph (c) to read as follows:
Sec. 356.25 Payment for awarded securities.
* * * * *
(a) * * *
(2) * * * Such additional amount may be due if the auction
calculations result
[[Page 50932]]
in a premium or if accrued interest and/or inflation adjustment is due.
* * * * *
(c) Amount of payment for awarded securities. The payment amount
for awarded securities will be the settlement amount as defined in
Sec. 356.2. (See formulas in Appendix B.)
11. Section 356.30 is amended by redesignating the text of the
current section as (a), adding a heading of ``General'' and revising
the last sentence in newly redesignated paragraph (a), and adding
paragraph (b) to read as follows:
Sec. 356.30 Payment of principal and interest on notes and bonds.
(a) General. * * * In the event any principal or interest payment
date is not a business day, the amount is payable (without additional
interest) on the next business day.
(b) Treasury inflation-protection securities. If at maturity the
inflation-adjusted principal is less than the par amount of the
security, an additional amount will be paid at maturity so that the
additional amount plus the inflation-adjusted principal equals the par
amount. If a security has been stripped, any such additional amount
will be paid at maturity to holders of principal components only.
Regardless of whether or not an additional amount is paid, the final
interest payment will be based on the inflation-adjusted principal at
maturity.
12. Section 356.31 is amended by revising paragraph (a) and the
first sentence of paragraph (b), redesignating paragraphs (c) and (d)
as paragraphs (g) and (h) respectively, adding new paragraphs (c)
through (f), adding a third and fourth sentence to newly redesignated
paragraph (g) and revising newly redesignated paragraph (h) to read as
follows:
Sec. 356.31 STRIPS.
(a) General. A note or bond may be designated in the offering
announcement as eligible for the STRIPS program. At the option of the
holder, and generally at any time from its issue date until its call or
maturity, any such security may be ``stripped,'' i.e., divided into
separate principal and interest components. A short or long first
interest payment and all interest payments within a callable period are
not eligible to be stripped from the principal component. The CUSIP
numbers and payment dates for the principal and interest components are
provided in the offering announcement if not previously announced.
(b) Minimum par amounts required for STRIPS. For a note or bond to
be stripped into the components described above, the par amount, which
is not adjusted for inflation, of the note or bond must be in an amount
that, based on its interest rate, will produce a semiannual interest
payment in a multiple of $1,000. * * *
(c) Principal components stripped from fixed-principal securities.
Principal components stripped from fixed-principal securities are
maintained in accounts, and transferred, in TRADES at their par amount.
The principal components have a CUSIP number that is different from the
CUSIP number of the fully-constituted (unstripped) security.
(d) Interest components stripped from fixed-principal securities.
Interest components stripped from fixed-principal securities are
maintained in accounts, and transferred, in TRADES at their original
payment value, which is derived by applying the semiannual interest
rate to the par amount. When an interest component is created, the
interest payment date becomes the maturity date for the component. All
such components with the same maturity date have the same CUSIP number,
regardless of the underlying security from which the interest payments
were stripped. All interest components have CUSIP numbers that are
different from the CUSIP number of any fully-constituted security and
any principal component.
(e) Principal components stripped from inflation-protection
securities. Principal components stripped from inflation-protection
securities are maintained in accounts, and transferred, in TRADES at
their par amount. At maturity, the holder will receive the inflation-
adjusted principal value or the par amount, whichever is greater. (See
Sec. 356.30.) Principal components have a CUSIP number that is
different from the CUSIP number of the fully-constituted (unstripped)
security.
(f) Interest components stripped from inflation-protection
securities. Interest components stripped from inflation-protection
securities are maintained in accounts, and transferred, in TRADES at
their original payment value, which is derived by applying the
semiannual interest rate to the par amount. When an interest component
is created, the interest payment date becomes the maturity date for the
component. Each such component has a unique CUSIP number that is
different from the CUSIP number of any interest components stripped
from different securities, even if the components have the same
maturity date. All interest components have CUSIP numbers that are
different from the CUSIP number of any fully-constituted security and
any principal component. At maturity, the payment to the holder will be
derived by applying the semiannual interest rate to the inflation-
adjusted principal of the underlying security.
(g) Reconstituting a security. * * * Interest components stripped
from inflation-protection securities are different from interest
components stripped from fixed-principal securities and, accordingly,
are not interchangeable for reconstitution purposes. Interest
components stripped from one inflation-protection security are not
interchangeable for reconstitution purposes with interest components
stripped from another inflation-protection security.
(h) Applicable regulations. Unless otherwise provided in this Part,
notes and bonds stripped into their STRIPS components are governed by
Subparts A, B and D of Part 357 of this title.
13. Section 356.32 is revised to read as follows:
Sec. 356.32 Taxation.
(a) General. Securities issued under this Part are subject to all
applicable taxes imposed under the Internal Revenue Code of 1986, or
successor. Under section 3124 of Title 31, United States Code, the
securities are exempt from taxation by a State or political subdivision
of a State, except for State estate or inheritance taxes and other
exceptions as provided in that section.
(b) Treasury inflation-protection securities. Special federal
income tax rules for inflation-protection securities, and principal and
interest components stripped from such securities, are set forth in
Internal Revenue Service regulations.
14. Appendix B to Part 356 is amended by revising the list of
section titles, and adding two new paragraphs following the list to
read as follows:
Appendix B to Part 356--Formulas and Tables
I. Computation of Interest on Treasury Bonds and Notes.
II. Formulas for Conversion of Fixed-Principal Security Yields to
Equivalent Prices.
III. Formulas for Conversion of Inflation-Protection Security Yields
to Equivalent Prices.
IV. Computation of Purchase Price, Discount Rate, and Investment
Rate (Coupon-Equivalent Yield) for Treasury Bills.
The numbers in this appendix are examples given for illustrative
purposes only and are in no way a prediction of interest rates on any
bills, notes, or bonds issued under this Part.
In some of the following examples, intermediate rounding is used to
allow
[[Page 50933]]
the reader to follow the calculations. In actual practice, the
Department generally does not round prior to determining the final
result.
15. Appendix B, Section I is amended as follows: by redesignating
paragraphs A through D and their corresponding Examples as paragraphs
A.1. through A.4. respectively, and adding a new title for paragraph A,
revising newly redesignated paragraph A.1., revising the first sentence
in newly redesignated paragraphs A.2., A.3. and its Example, and A.4.
and its Example; by adding a new paragraph B; and by redesignating
paragraph E as paragraph C, revising the second paragraph, adding a
third paragraph prior to the Examples in newly redesignated paragraph
C., redesignating the headings for Examples C. (1) and (2) as C.(1)(i)
and C.(1)(ii) respectively, and adding a new heading for Example C.(1).
I. Computation of Interest on Treasury Bonds and Notes
A. Treasury Fixed-Principal Securities
1. Regular Half-Year Payment Period
Interest on marketable fixed-principal securities is payable on a
semiannual basis. The regular interest payment period is a full half-
year of six calendar months. Examples of half-year periods are: (1)
February 15 to August 15, (2) May 31 to November 30, and (3) February
29 to August 31 (in a leap year). Calculation of an interest payment
for a fixed-principal security with a par amount of $1,000 and an
interest rate of 8% is made in this manner: ($1,000 x .08) $40.
Specifically, a semiannual interest payment represents one half of one
year's interest, and is computed on this basis regardless of the actual
number of days in the half-year.
2. Daily Interest Decimal
In cases where an interest payment period for a fixed-principal
security is shorter or longer than six months or where accrued interest
is payable by an investor, a daily interest decimal, based on the
actual number of days in the half-year or half-years involved, must be
computed. ***
* * * * *
3. Short First Payment Period
In cases where the first interest payment period for a fixed-
principal security covers less than a full half-year period (a ``short
coupon''), the daily interest decimal is multiplied by the number of
days from, but not including, the issue date to, and including, the
first interest payment date, resulting in the amount of the interest
payable per $1,000 par amount.* * *
Example. A 2-year fixed-principal note paying 8\3/8\% interest
was issued on July 2, 1990, with the first interest payment on
December 31, 1990. * * *
4. Long First Payment Period
In cases where the first interest payment period for a fixed-
principal security covers more than a full half-year period (a ``long
coupon''), the daily interest decimal is multiplied by the number of
days from, but not including, the issue date to, and including, the
last day of the fractional period that ends one full half-year before
the interest payment date. * * *
Example. A 5-year 2-month fixed-principal note paying 7-7/8%
interest was issued on December 3, 1990, with the first interest
payment due on August 15, 1991. * * *
B. Treasury Inflation-Protection Securities
1. Indexing Process
Interest on marketable Treasury inflation-protection securities is
payable on a semiannual basis. The inflation-protection securities are
issued with a stated rate of interest which remains constant for the
term of the particular security. Interest payments are based on the
security's inflation-adjusted principal at the time interest is paid.
This adjustment is made by multiplying the par amount of the security
by the applicable index ratio.
2. Index Ratio
The numerator of the Index ratio, the Ref CPIDate, is the index
number applicable for a specific day, and the denominator of the Index
ratio is the Ref CPI applicable for the original issue date. However,
when the dated date is different from the original issue date, the
denominator is the Ref CPI applicable for the dated date. The formula
for calculating the Index ratio is:
[GRAPHIC] [TIFF OMITTED] TP27SE96.000
Where Date = valuation date
Treasury does not intend to publish the Index ratio for use by
market participants. Rather dealers, financial institutions, and other
market participants that need the Index ratio for trading purposes are
expected to calculate the ratio using the formula provided above.
3. Reference CPI
The Ref CPI for the first day of any calendar month is the CPI for
the third preceding calendar month. For example, the Ref CPI applicable
to April 1 in any year is the CPI for January, which is reported in
February. The Ref CPI for any other day of a month is determined by a
linear interpolation between the Ref CPI applicable to the first day of
the month in which such day falls (in the example, January) and the Ref
CPI applicable to the first day of the month immediately following (in
the example, February). For purposes of interpolation, calculations
with regard to the Ref CPI and the Index ratio for a specific date will
be truncated to six decimal places and rounded to five decimal places
such that the Ref CPI and the Index ratio for that date will be
expressed to five decimal places. The formula for the Ref CPI for a
specific date is:
[GRAPHIC] [TIFF OMITTED] TP27SE96.001
Where Date = valuation date
D = the number of days in the month in which Date falls
t = the calendar day corresponding to Date
Ref CPIM = Ref CPI for the first day of the calendar month in which
Date falls
Ref CPIM + 1 = Ref CPI for the first day of the calendar month
immediately following Date
For example, the Ref CPI for April 15, 1996 is calculated as
follows:
[GRAPHIC] [TIFF OMITTED] TP27SE96.002
[[Page 50934]]
where D = 30, t = 15
Ref CPIApril 1, 1966 = 154.40, the nonseasonally adjusted CPI-U
for January 1996.
Ref CPIMay 1, 1966 = 154.90, the nonseasonally adjusted CPI-U for
February 1996.
Putting these values in the equation above:
[GRAPHIC] [TIFF OMITTED] TP27SE96.003
This value truncated to six decimals is 154.633333; rounded to five
decimals it is 154.63333.
To calculate the index ratio for April 16, 1996, for an inflation-
protection security issued on April 15, 1996, the Ref CPIApril 16,
1966 must first be calculated. Using the same values in the equation
above except that t=16, the Ref CPIApril 16, 1966 is 154.65000.
The index ratio for April 16, 1996 is: Index RatioApril 16,
1966 = 154.65000/154.63333 = 1.000107803.
This value truncated to six decimals is 1.000107; rounded to five
decimals it is 1.00011.
4. Index Contingencies
If a previously reported CPI is revised, Treasury will continue to
use the previously reported CPI in calculating the principal value or
interest payments.
If the CPI is rebased to a different year, Treasury will continue
to use the CPI based on the base reference period in effect when the
security was first issued, as long as that CPI continues to be
published.
If the CPI is discontinued or substantially altered while an
inflation-protection security is outstanding, Treasury will consult
with the Bureau of Labor Statistics, or any successor agency, to
determine an appropriate substitute index and methodology for linking
the two series. Treasury will then notify the public of the substitute
index and methodology. Determinations of the Secretary in this regard
will be final.
If the CPI for a particular month is not reported by the last day
of the following month, the Treasury will announce an index number
based on the last twelve-month change in the CPI available. Any
calculations of the Treasury's payment obligations on the inflation-
protection security that rely on that month's CPI will be based on the
index number that the Treasury has announced. For example, if the CPI
for month M is not reported timely, the formula for calculating the
index number to be used is:
[GRAPHIC] [TIFF OMITTED] TP27SE96.004
This index number will be used for all subsequent calculations that
rely on that month's index number and will not be replaced by the
actual CPI when it is reported.
Generalizing for the last reported CPI issued N months prior to
month M:
[GRAPHIC] [TIFF OMITTED] TP27SE96.005
5. Computation of Interest for a Regular Half-Year Payment Period
Interest on marketable Treasury inflation-protection securities is
payable on a semiannual basis. The regular interest payment period is a
full half-year or six calendar months. Examples of half-year periods
are January 15 to July 15, and April 15 to October 15. An interest
payment will be a fixed percentage of the value of the inflation-
adjusted principal, in current dollars, for the date on which it is
paid. Interest payments will be calculated by multiplying one-half of
the specified annual interest rate for the inflation-protection
securities by the inflation-adjusted principal for the interest payment
date. Specifically, a semiannual interest payment is computed on the
basis of one half of one year's interest regardless of the actual
number of days in the half-year.
Example. A 10-year inflation-protection note paying 3% interest
was issued on July 15, 1996, with the first interest payment on
January 15, 1997. The Ref CPI on July 15, 1996 (Ref CPIIssue
Date) was 120, and the Ref CPI on January 15, 1997 (Ref
CPIDate) was 132. For a par amount of $100,000, the inflation
adjusted principal on January 15, 1997 was (132/120) x $100,000,
or $110,000. This amount was then multiplied by .03/2, or .015,
resulting in a payment of $1,650.00.
C. Accrued Interest
* * * * *
For a fixed-principal security, if accrued interest covers a
fractional portion of a full half-year period, the number of days in
the full half-year period and the stated interest rate will determine
the daily interest decimal to be used in computing the accrued
interest. The decimal is multiplied by the number of days for which
interest has accrued. If a reopened fixed-principal security has a long
first interest payment period (a ``long coupon''), and the dated date
for the reopened issue is less than six full months before the first
interest payment, the accrued interest will fall into two separate
half-year periods, and a separate daily interest decimal must be
multiplied by the respective number of days in each half-year period
during which interest has accrued. All accrued interest computations
are rounded to five decimal places for a $1,000 inflation-adjusted
principal, using normal rounding procedures. Accrued interest for a par
amount of securities greater than $1,000 is calculated by applying the
appropriate multiple to accrued interest payable for $1,000 par amount,
rounded to five decimal places.
For an inflation-protection security, accrued interest will be
calculated as shown in Section III, Paragraphs A and B of this
Appendix.
Examples. (1) Fixed-Principal Securities
(i) Involving One Half-Year: * * *
(ii) Involving Two Half-Years: * * *
16. Appendix B, Section II is amended by removing footnote 1, revising
the Section heading, revising the definition of ``C='', and revising
the headings of paragraphs A through G to read as follows:
II. Formulas for Conversion of Fixed-Principal Security Yields to
Equivalent Prices
Definitions
* * * * *
C = the regular annual interest per $100, payable semiannually, e.g.,
10.125 (the dollar equivalent of a 10-\1/8\% interest rate)
* * * * *
[[Page 50935]]
A. For fixed-principal securities with a regular first interest
payment period:
* * * * *
B. For fixed-principal securities with a short first interest
payment period:
* * * * *
C. For fixed-principal securities with a long first interest
payment period:
* * * * *
D. (1) For fixed-principal securities reopened during a regular
interest period where the purchase price includes predetermined accrued
interest.
(2) For new fixed-principal securities accruing interest from the
coupon frequency date immediately preceding the issue date, with the
interest rate established in the auction being used to determine the
accrued interest payable on the issue date.
* * * * *
E. For fixed-principal securities reopened during the regular
portion of a long first payment period:
* * * * *
F. For fixed-principal securities reopened during a short first
payment period:
* * * * *
G. For fixed-principal securities reopened during the fractional
portion (initial short period) of a long first payment period:
* * * * *
17. Appendix B is amended by redesignating Section III as Section
IV and adding a new Section III to read as follows:
III. Formulas for Conversion of Inflation-Protection Security
Yields to Equivalent Prices
Definitions
P = unadjusted or real price per 100 (dollars)
Padj = inflation adjusted price; P x Index RatioDate
A = unadjusted accrued interest per $100 original principal
Aadj = inflation adjusted accrued interest; A x Index
RatioDate
SA = settlement amount including accrued interest in current dollars
per $100 original principal; Padj + Aadj
r = days from settlement date to next coupon date
s = days in current semiannual period
i = real yield, expressed in decimals (e.g., 0.0325)
C = real annual coupon, payable semiannually, in terms of real dollars
paid on $100 initial, or real, principal of the security
n = number of full semiannual periods from issue date to maturity date,
except that, if the issue date is a coupon frequency date, n will be
one less than the number of full semiannual periods remaining until
maturity. Coupon frequency dates are the two semiannual dates based on
the maturity date of each note or bond issue. For example, a security
maturing on July 15, 2026 would have coupon frequency dates of January
15 and July 15.
vn = 1/(1 + i/2)n
[GRAPHIC] [TIFF OMITTED] TP27SE96.049
Date = valuation date
D=the number of days in the month in which Date falls
t=calendar day corresponding to Date
CPI=Consumer Price Index number
Ref CPIM=reference CPI for the first day of the calendar month in
which Date falls
Ref CPIM+1=reference CPI for the first day of the calendar month
immediately following Date
Ref CPIDate=Ref CPIM+[(t-1)/D][Ref CPIM+1-Ref CPIM]
Index RatioDate=Ref CPIDate/Ref CPIIssue Date
A. For inflation-protection securities with a regular first
interest payment period:
Formulas:
[GRAPHIC] [TIFF OMITTED] TP27SE96.006
Padj=P x Index RatioDate
A=[(s-r)/s] x (C/2)
Aadj=A x Index RatioDate
SA=Padj+Aadj
Index RatioDate=Ref CPIDate/Ref CPIIssue Date
Example. The Treasury issues a 10-year inflation- protection note
on July 15, 1996. The note is issued at a discount to yield 3.1%
(real). The note bears a 3% real coupon, payable on January 15 and July
15 of each year. The base CPI index applicable to this note is 120.\1\
Calculate the settlement amount.
\1\ This number is normally derived using the interpolative
process described in Appendix B, Section I, Paragraph B.
---------------------------------------------------------------------------
Definitions:
C=3.00
i=0.0310
n=19 (There are 20 full semiannual periods but n is reduced by 1
because the issue date is a coupon frequency date.)
r=184 (July 15, 1996 to January 15, 1997)
s=184 (July 15, 1996 to January 15, 1997)
Ref CPIDate=120
Ref CPIIssue Date=120
Resolution:
Index RatioDate=Ref CPIDate/Ref CPIIssue Date=120/120=1
A=[(184-184)/184] x \3/2\=0
Aadj=0 x 1=0
vn=1/(1+i/2)n=1/(1+.031/2)\19\=0.74658863
[GRAPHIC] [TIFF OMITTED] TP27SE96.045
[GRAPHIC] [TIFF OMITTED] TP27SE96.007
P=99.14578432
Padj=P x Index RatioDate
Padj=99.14578432 x 1=99.14578432
SA=Padj+Aadj
SA=99.14578432+0=99.14578432
B. For inflation-protection securities reopened during a regular
interest period where the purchase price includes predetermined accrued
interest:
Bidding:
The dollar amount of each bid is in terms of the par amount. For
example, if the Ref CPI applicable to the issue date of the bond is
120, and the reference CPI applicable to the reopening issue date is
132, a bid of
[[Page 50936]]
$10,000 will in effect be a bid of $10,000 x (132/120), or $11,000.
Formulas:
[GRAPHIC] [TIFF OMITTED] TP27SE96.008
Padj=P x Index RatioDate
A=[(s-r)/s] x (C/2)
Aadj = A x Index RatioDate
SA = Padj + Aadj
Index RatioDate = Ref CPIDate/Ref CPIIssue Date
Example. A 3% 10-year inflation-protection note was issued July
15, 1996, due July 15, 2006, with interest payments on January 15
and July 15. For a reopening on April 15, 1997, with inflation
compensation accruing from July 15, 1996 to April 15, 1997, and
accrued interest accruing from January 15, 1997 to April 15, 1997,
(90 days) solve for the price per 100 (P) at a real yield, as
determined in the reopening auction, of 3.40%. The base index
applicable to the issue date of this note is 120 and the reference
CPI applicable to April 15, 1997, is 132.
Definitions:
C = 3.00
i = 0.0340
n = 18
r = 91 (April 15, 1997, to July 15, 1997)
s = 181 (January 15, 1997, to July 15, 1997)
Ref CPIDate = 132
Ref CPIIssue Date = 120
Resolution:
Index RatioDate = Ref CPIDate/Ref CPIIssue Date = 132/
120 = 1.100
vn = 1/(1 + i/2)a = 1/(1 + .0340/2)18 = 0.73828296
[GRAPHIC] [TIFF OMITTED] TP27SE96.047
[GRAPHIC] [TIFF OMITTED] TP27SE96.009
P = 96.841049
Padj = P x Index RatioDate
Padj = 96.841049 x 1.100 = 106.525154
A = [(181-91)/181] x 3/2 = 0.745856
Aadj = A x 1.100 = 0.820442
SA = Padj + Aadj = 106.525154 + 0.820442
SA = 107.345596
* * * * *
18. Part 356 is amended by adding new Appendixes C and D to read as
follows:
Appendix C to Part 356--Investment Considerations
I. Inflation-Protection Securities
A. Principal and Interest Variability
An investment in securities with principal or interest determined
by reference to an inflation index involves factors not associated with
an investment in a fixed-principal security. Such factors may include,
without limitation, the possibility that the inflation index may be
subject to significant changes, that changes in the index may or may
not correlate to changes in interest rates generally or with changes in
other indices, that the resulting interest may be greater or less than
that payable on other securities of similar maturities, and that, in
the event of sustained deflation, the amount of the semiannual interest
payments, the inflation-adjusted principal of the security, and the
value of stripped components, will decrease. However, if at maturity
the inflation-adjusted principal is less than a security's par amount,
an additional amount will be paid at maturity so that the additional
amount plus the inflation-adjusted principal equals the par amount.
Regardless of whether or not such an additional amount is paid,
interest payments will always be based on the inflation-adjusted
principal as of the interest payment date. If a security has been
stripped, any such additional amount will be paid at maturity to
holders of principal components only. (See Sec. 356.30.)
B. Trading in the Secondary Market
The Treasury securities market is the largest and most liquid
securities market in the world. While Treasury expects that there will
be an active secondary market for inflation-protection securities, that
market initially may not be as active or liquid as the secondary market
for Treasury fixed-principal securities. In addition, as a new product,
inflation-protection securities may not be as widely traded or as well
understood as Treasury fixed-principal securities. Lesser liquidity and
fewer market participants may result in larger spreads between bid and
asked prices for inflation-protection securities than the bid-asked
spreads for fixed-principal securities with the same time to maturity.
Larger bid-asked spreads normally result in higher transaction costs
and/or lower overall returns. The liquidity of an inflation-protection
security may be enhanced over time as Treasury issues additional
amounts or more entities participate in the market.
C. Tax Considerations
Treasury inflation-protection securities and the stripped interest
and principal components of these securities are subject to specific
tax rules provided by Treasury regulations issued under sections
1275(d) and 1286 of the Internal Revenue Code of 1986, as amended.
D. Indexing Issues
While the CPI measures changes in prices for goods and services,
movements in the CPI that have occurred in the past are not necessarily
indicative of changes that may occur in the future.
The calculation of the index ratio incorporates an approximate
three-month lag, which may have an impact on the trading price of the
securities, particularly during periods of significant, rapid changes
in the index.
The CPI is reported by the Bureau of Labor Statistics, a bureau
within the Department of Labor. The Bureau of Labor Statistics operates
independently of the Treasury and, therefore, Treasury has no control
over the determination, calculation, or publication of the index. For a
discussion of how the CPI will be applied in various situations, see
Appendix B, Section I, Paragraph B.
Appendix D to Part 356--Description of the Consumer Price Index
The Consumer Price Index (``CPI'') for purposes of inflation-
protection securities is the non-seasonally adjusted U.S. City Average
All Items Consumer Price Index for All Urban Consumers, published
monthly by the Bureau of Labor Statistics of the Department of Labor.
The CPI is a measure of the average change in consumer prices over time
in a fixed market basket of goods and services, including food,
clothing, shelter, fuels, transportation, charges for doctors' and
dentists' services, and drugs.
In calculating the index, price changes for the various items are
averaged together with weights that represent their importance in the
spending of urban households in the United States. The contents of the
market basket of goods and services and the weights assigned to the
various items are updated periodically to take into account changes in
consumer expenditure patterns.
[[Page 50937]]
The CPI is expressed in relative terms in relation to a time base
reference period for which the level is set at 100. For example, if the
CPI for the 1982-84 reference period is 100.0, an increase of 16.5
percent from that period would be shown as 116.5. The CPI for a
particular month is released and published during the following month.
From time to time, the CPI is rebased to a more recent base reference
period. The base reference period for a particular inflation-protection
security will be provided on the offering announcement for that
security.
Further details about the CPI may be obtained by contacting the
Bureau of Labor Statistics.
19. Exhibit A to Part 356 is amended by adding a new Section IV to
the list of section titles and to the text of Exhibit A to read as
follows:
Exhibit A to Part 356--Sample Announcements of Treasury Offerings to
the Public
* * * * *
IV. Treasury Inflation-Protection Note Announcement
* * * * *
IV. Treasury Inflation-Protection Note Announcement
EMBARGOED UNTIL 2:30 P.M. October 2, 20XX
CONTACT: Office of Financing 202/219-3350
TREASURY TO AUCTION $5,500 MILLION OF 10-YEAR INFLATION-PROTECTION
NOTES
The Treasury will auction $5,500 million of 10-year inflation-
protection notes to raise cash. In addition, there is $7,906 million of
publicly-held securities maturing October 15, 20XX.
In addition to the public holdings, Federal Reserve Banks hold $327
million of the maturing securities for their own accounts, which may be
exchanged for additional amounts of the new securities.
The maturing securities held by the public include $584 million
held by Federal Reserve Banks as agents for foreign and international
monetary authorities. Amounts bid for these accounts by Federal Reserve
Banks will be added to the offering.
The auction will be conducted in the single-price auction format.
All competitive and noncompetitive awards will be at the highest yield
of accepted competitive tenders.
Tenders will be received at Federal Reserve Banks and Branches and
at the Bureau of the Public Debt, Washington, D.C. This offering of
Treasury securities is governed by the terms and conditions set forth
in the Uniform Offering Circular (31 CFR Part 356) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about the new security are given in the attached offering
highlights.
HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF 10-YEAR INFLATION-
PROTECTION NOTES TO BE ISSUED OCTOBER 15, 20XX
October 2, 20XX
Offering Amount........................... $5,500 million
Description of Offering:
Term and type of security................. 10-year inflation-protection
notes
Series.................................... D-20XX
CUSIP number.............................. 912XXX XX X
Auction date.............................. October 9, 20XX
Issue date................................ October 15, 20XX
Dated date................................ October 15, 20XX
Maturity date............................. October 15, 20XX
Interest Rate............................. Determined based on the
highest accepted bid
Real yield................................ Determined at auction
Interest payment dates.................... April 15 and October 15
Minimum bid amount........................ $1,000
Multiples................................. $1,000
Accrued interest payable by investor...... None
Premium or discount....................... Determined at auction
STRIPS Information:
Minimum amount required................... Determined at auction
Corpus CUSIP number....................... 912XXX XX X
Due dates and CUSIP numbers for additional TINTs:
912XXX
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
April 15, 20XX............................................... XX X
October 15, 20XX............................................. XX X
Submission of Bids:
Noncompetitive bids: Will be accepted in full up to $5,000,000 at
the highest accepted yield.
Competitive bids:
(1) Must be expressed as a real yield with three decimals, e.g.,
3.120%.
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $____ billion or greater.
(3) Net long position must be determined as of one half-hour
prior to the closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single Yield: 35% of public offering
Maximum Award: 35% of public offering
Receipt of Tenders:
Noncompetitive tenders: Prior to 12:00 noon Eastern Daylight Saving
time on auction day.
Competitive tenders: Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day.
Payment Terms: Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date.
Indexing Information:
CPI Base Reference Period: 19XX-XX
Ref CPI 10/15/20XX: XXX.XXXXX
[FR Doc. 96-24860 Filed 9-25-96; 12:09 pm]
BILLING CODE 4810-39-W