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still a significant increase in the total. 17 Interest rates on the total debt showed an upward trend during the 1970s (see Table Thirteen).

TABLE THIRTEEN

Computed Interest on Total Debt

Fiscal Years

1972

1973

1974 1975 1976 1977 1978 1979 1980 Computed Interest ... 5.09 5.98 6.56 6.35 6.44 6.43 7.13 8.06 9.03 Source: Treasury Bulletin, December 1980, Table FD-2.

Debt Management Policies

As had happened in the past when the workload increased, measures were taken to enable the Treasury authorities to manage the rapid increase in debt that took place during the 1970s. When interest rates reached the 7-8 percent range in early 1970, Congress eased away from the 4 1/4 percent ceiling imposed on the sale of bonds by the Second Liberty Loan Act, by allowing the Treasury to issue up to $10 billion in bonds to the public at any interest rate. In addition to gaining greater flexibility on interest rates, the Treasury improved its policies with regard to Treasury auctions, savings bonds and foreign sales. The following discussion will highlight each of these.

Treasury Auctions:

In 1971 the Treasury also began selling new issues of Treasury notes for cash at competitive auctions, instead of employing its long-time policy of offering securities for subscription at fixed prices and interest rates announced in advance. This practice left it to the financial markets to set prices and rates of interest on the securities, thereby ensuring that each offering could be sold with minimal intervention in financial markets by the Federal Reserve. In addition, the Federal Reserve continued to assist the Treasury by administering the auctions in each Reserve Bank by receiving tenders, tabulating bid data and reporting same to the Bureau's financing staff for immediate calculations of the auction results (high, low, and average prices, "split" percentage, etc.) and deter

17 Eisner, and Pieper, Deficit, 1987, 93.

mination of the accepted amounts to be allotted in each Reserve district.

In January 1973 the Treasury conducted the first of several auctions using the uniform-price method, in which all tenders accepted in the auction are awarded at the price of the lowest accepted tender. In this way, investors wary of buying long-term securities in a normal auction with a substantial range of prices, would be provided an incentive to bid at prices sufficiently high to be sure of awards. They would also be assured that if they bid at prices within the accepted range, they would be awarded the bonds at the same price as every other bidder. 18

Under the debt administration policy then in place, when a sale of a marketable Treasury issue was conducted, a public notice was prepared at the Bureau and released to the press. It was then disseminated to each of the Federal Reserve Banks. The public notice gave a brief description of the security being offered, terms of the offering, method of allotment and payment, the auction provisions, and other general terms. Usually, a few days later, a second press release would be prepared by the Bureau which provided the interest rate to be set on the security (if it had not been announced in the original press release), if the auction was on a price basis. During this time, as in most previous periods, the Bureau of Engraving and Printing would print the new issues of securities.

In offerings of securities at auction, competitive bids would be made in terms of price per $100 of par value (with not more than three decimal places) or yield (to two decimal places). In a yield basis auction, when the accepted range of bids to complete the amount of the offering was determined, an interest coupon rate based on the average of accepted bids would be established to the nearest 1/8 percent to make the average accepted price $100 or less. Noncompetitive tenders (up to the stated dollar limit), and the competitive tenders at the lowest yields would be accepted until the amount offered was covered. Tenders received at the Federal Reserve Banks and the Treasury were all reported to the Office of the Commissioner of the Public Debt, where final acceptance of offers would be determined. Successful bidders would be informed through the Federal Reserve Banks or the Treasury. When payment for the securities was received by the Treasury, either directly or through the Federal Reserve Banks, the Commissioner of the Public

18 Secretary, Annual Report, 1973, 12.

Debt would be authorized by the Fiscal Assistant Secretary to issue the securities. 19

In September 1972 the Treasury converted its end-of-the-month, 1-year cycle bill to a 52-week bill cycle with offerings made every 4 weeks. The previously offered 9-month bill was discontinued. 20 By 1976 it could be reported that the Treasury's financing activities were becoming increasingly regularized, with a schedule of weekly auctions of 13- and 26-week bills, the auction of 52-week bills every 4 weeks, traditional quarterly refunding, end-of-the-month 2-year note offerings, end-of-the-quarter 4-year note sales, a cycle of 5-year notes sold in the first month of each quarter, and regular offerings of long-term bonds. 21

On the negative side, during 1971, after nearly 6 years of being unable to issue long-term bonds with interest rates more than 4 1/4 percent, the average length of the debt held by the public had fallen to 3 years 6 months. 22 In 1972 the policy of competitive auctions was extended to longer-term issues, including offerings of 10-year and 12-year bonds. Those issues, totaling $4.7 billion, were made under the newly authorized exception Congress had granted in terms of exceeding the interest rate ceiling on long-term bonds. 23 Despite these changes, the average maturity length of the outstanding debt continued to fall, reaching a record low of 2 years 4 months in February 1976. 24

Savings Bonds:

Sales of Savings Bonds continued to rise, but did not keep pace with the increase in the total debt. In 1970 the total Series E and H Savings Bonds and Savings Notes outstanding was $52 billion, 14 percent of the total public debt. At the end of the decade, in 1980, the total of $72.7 billion in Savings Bonds and Notes was only 8 percent of the public debt. 25 26 27 In 1979 it was decided that there

19

7-13.

U.S. Department of the Treasury, Public Debt Accounting, bound booklet, 1976,

20 Secretary, Annual Report, 1973, 12.

21 Wrestling with Leviathan-How Treasury Manages the Debt, Treasury Papers, October 1976, 14.

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would be no further extensions of the maturity of the Series E and H Savings Bonds issued between May 1941 and April 1952. Two new Series of EE and HH Savings Bonds were first offered for sale in the early part of 1980. 28

The limit on the value of the new Series EE and HH that could be purchased during 1 year was raised from the $10,000 that had been in place on the Series E and H to $30,000 for Series EE and $20,000 for Series HH. Series EE Bonds could not be redeemed until after 6 months from their purchase, which cut down somewhat on the work-load at the Bureau. Equally important in terms of saving the Bureau in administrative costs, time limits were established for servicing claims on lost or stolen bonds. The courts had ruled that a claim filed for a savings bond redeemed for more than 6 years was barred by the statute of limitations. This enabled the Bureau to destroy millions of microfilm records of bonds redeemed for more than 10 years and to limit claims for bonds matured for more than 6 years after final maturity unless the claimant provided the serial number of the bonds. 29

Foreign Sales:

During this period, there was an increase in the amount of public debt securities owned by foreign governments. In 1962 the Treasury, for the first time since 1918, had begun borrowing directly from foreign official agencies by selling them special issues of nonmarketable securities. During the 1960s, the total of these issues stayed in the $1-$2 billion range. In 1971, however, they rose from $4.8 billion to $9.3 billion, with an even more dramatic increase to $19 billion coming in 1972. Sales of these securities continued to climb, reaching $28.5 billion in 1973. 30 They then leveled off to about $21 billion in 1976. 31

The sale of Treasury securities to foreign citizens also increased during the 1970s. While no separate accounting of these sales were given by the Treasury, their rise can be seen in the overall rise of

26 Secretary, Annual Report, 1975, 11.

27 Secretary, Annual Report, 1980, 11.

28 Secretary, Annual Report, 1979, 160.

29

Regulations Governing United States Savings Bonds, Series EE and HH, Federal Register, December 26, 1979.

30 Secretary, Annual Report, 1973, 13-15.

31 Secretary, Annual Report, 1976, 30 and 33.

foreign holdings of debt, which includes the sales to foreign governments. Total foreign holdings of public debt securities reached $60.2 billion in 1973 and reached $70.6 billion in 1976. 32 Foreign holdings continued to rise, reaching $95.1 billion in 1977, $121 billion in 1978, $125.2 in 1979, and $126 billion in 1980. 33 34 35 36 Since sales to foreign governments and agencies had levelled off by 1976, the increases after that year represents sales made mainly to foreign citizens. By 1978 foreign governments and agencies and foreign citizens held 16 percent of the total of public debt securities and the Treasury began including this fact in its annual table of estimated public debt ownership. 37 For a comparison of the shifting composition of public debt ownership during the 1970s, see Table Fourteen.

Debt Administration at the Bureau

Operations at the Bureau of the Public Debt continued to keep pace with the expansion of the debt, but the pace was not always even. A statistical measure of the workload at the Bureau can be seen again in the number of accounts being handled. During 1970, 78,883 accounts for registered marketable securities were opened and 40,530 were closed, with the total number of open accounts at 261,686 at the end of the year. In 1975 about 180,000 accounts were opened and 70,000 were closed, with the total then at 383,175. By 1980, the figures had risen sharply, with opened accounts hitting 1,269,000 and closed accounts at 1,001,000-with a total of 1,171,000 accounts at year end. 38 39 40 The total of savings bond accounts reached 4.7 billion in 1980, an increase of 1.4 billion since 1970. 41

Because of this extremely large growth in its workload, the Bureau had to expand its employment from 1,915 persons in 1970 to 2,200 in 1980. Although this 15 percent increase during the decade may appear to compare unfavorably with the 2 percent rise in total

32

Secretary, Annual Report, 1973, 13-14, and 1976, 33.

33 Secretary, Annual Report, 1977, 14.

34 Secretary, Annual Report, 1978, 15. 35 Secretary, Annual Report, 1979, 14. 36 Secretary, Annual Report, 1980, 13. 37 Secretary, Annual Report, 1978, 14. 38 Secretary, Annual Report, 1970, 103. Secretary, Annual Report, 1975, 178. Secretary, Annual Report, 1980, 163. 41 Secretary, Annual Report, 1980, 161.

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