[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Proposed Rules]
[Pages 38127-38128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18802]


Office of the Assistant Secretary for Financial Markets
Fiscal Service

31 CFR Part 356

Amendments to the Uniform Offering Circular for the Sale and 
Issue of Marketable Book-Entry Treasury Bills, Notes and Bonds; Notice 
of Meeting

AGENCY: Office of the Assistant Secretary for Financial Markets, 

ACTION: Advance Notice of Proposed Rulemaking; Meeting.


SUMMARY: On May 20, 1996, the Department of the Treasury published an 
Advance Notice of Proposed Rulemaking soliciting comments on certain 
aspects of a new inflation-protection security. The Treasury is hosting 
a symposium to discuss the advantages and disadvantages of certain 
structures under consideration for the inflation-protection security 
Treasury intends to issue. The meeting will be open to the public.

DATES: 3:00 p.m., July 24, 1996.

ADDRESSES: Main Treasury Building, 1500 Pennsylvania Avenue, N.W., 
Washington, D.C. 20220; Meeting Room To Be Announced. For security 
reasons, in order to be admitted to the Treasury Building, you must 
call the contact person below.

Questions about this notice should be addressed to Alison Shelton, 
Financial Economist, Office of Federal Finance Policy Analysis, Office 
of the Assistant Secretary for Financial Markets, at 202-622-2680. 
Persons wishing to attend the meeting are requested to contact Tinese 
Hamilton at 202-622-2624, prior to 12:00 noon Eastern time on July 24, 
1996, to make arrangements for attendance.

SUPPLEMENTARY INFORMATION: On May 16, 1996, the Department of the 
Treasury (Department or Treasury) announced its intention to issue a 
new type of marketable book-entry security with a nominal return linked 
to the inflation rate in prices or wages, as officially published by 
the United States Government. An Advance Notice of Proposed Rulemaking 
(ANPR) seeking comments on various structures was published on May 20, 
1996 (61 FR 25164) and a series of meetings was subsequently held by 
the Treasury to obtain public input on the new inflation-protection 
    As a result of the comments received in response to the ANPR and at 
the public meetings, the Department is

[[Page 38128]]

holding a symposium to discuss and obtain comments and information on 
the comparison between two different structures for an inflation-
protection security--a Canadian-style and a current pay structure.
    The Treasury has invited certain commenters to take part in the 
symposium. These participants will comment on certain questions posed 
by the Treasury and take part in a discussion. Members of the public 
are invited to observe. Written comments from the public are also 
welcome (see below). The Treasury intends to seek further comment on 
the structure for Treasury inflation-protection securities and other 
issues prior to issuing final rules.

Possible Structures

    The Canadian-style structure was described in the ANPR. Briefly, 
the principal of a Canadian-style inflation-protection security is 
adjusted for inflation (with a lag) such that its real value remains 
constant. The semiannual coupon payments are a fixed percentage of the 
current, inflation-adjusted value of the principal on the interest 
payment date. At maturity, the inflation-adjusted principal is paid, 
along with the last interest payment. (Please refer to the ANPR for the 
formulas for the Canadian-style structure.)
    Some commenters have suggested that the Treasury consider an 
alternative structure that was not described in the ANPR. Under this 
current pay structure, all the inflation compensation and real interest 
is paid out semiannually. The formula for the semiannual coupon on the 
current pay security is the sum of the semiannual coupon and the 
principal appreciation (depreciation) of the Canadian-style security. 
Looking at this another way, the current pay semiannual coupon rate is 
the sum of the real semiannual rate, the six-month percentage change in 
the price or wage index, and the product of these two rates. The 
principal of the current pay security would not be indexed. In order to 
simplify the security, it is assumed here that the rate will not be 
less than zero. Possible formulas for the current pay structure are 
provided in the Appendix at the end of this notice.


    The Treasury Department is interested in response to the following 
    (1) Which structure, Canadian or current pay, is likely to have the 
largest potential market?
    (2) Which investor groups would find investments in the different 
structures appealing?
    (3) How would the yield on the current pay structure compare with 
the yields on other Treasury securities (bills, notes, or bonds)?
    (4) If the current pay structure were strippable, would there be 
substantial market interest in the stripped components?
    (5) Would the preferred maturity sectors for the current pay 
structure be different from those for the Canadian-style structure?
    (6) What would be the best way to auction current pay securities? 
For example, should the Treasury use a single-price auction and set the 
coupon rate at the highest accepted yield? Should reopening auctions be 
based on price rather than yield?
    (7) Which structure would provide the Treasury with the largest 
savings in financing costs?

Written Comments

    The Treasury also welcomes written comments on these questions. 
Written comments should be sent to: The Government Securities 
Regulations Staff, Bureau of the Public Debt, 999 E Street N.W., Room 
515, Washington, D.C. 20239. Comments received, together with any 
written materials presented at the symposium, will be available for 
public inspection and copying at the Internal Revenue Service, FOIA 
Reading Room, located at the Internal Revenue Service building at 
Pennsylvania Avenue and 11th Streets, N.W., Room 1621, until the 
Treasury Department Library reopens.

    Dated: July 18, 1996.
Darcy Bradbury,
Assistant Secretary, Financial Markets.

Appendix--Formulas for Current Pay Structure

I. Reference INUM:

                                                 Ref INUMDate=Ref INUMM +         -------       [Ref INUMM+1-Ref INUMM]                                 

II. Index Ratio:

                                                                      Ref INUMDate                              
                                          Index RatioDate =    -------------------------                        
                                                                     Ref INUMLastSA                             

III. Semiannual Interest:

A. Coupon = (I/2)  x  Index RatioDate  x  P + (Index 
RatioDate - 1) X P
though not less than zero.

B. Coupon Rate = (I/2) + Infl. Rate + ((I/2)  x  Infl. Rate)
though not less than zero.
Date=valuation date
D=the number of days in the month in which Date falls
t=the calendar day corresponding to Date
INUM=index number
Ref INUMLastSA=reference INUM for the original issue date or last 
semiannual interest payment date
Ref INUMM=reference INUM for the first day of the calendar month 
in which Date falls
Ref INUMM+1=reference INUM for the first day of the calendar month 
immediately following Date
I=real interest rate (set at initial auction)
P=principal amount
Coupon=semiannual interest payment amount
Coupon Rate=semiannual coupon rate
Infl. Rate=Index RatioDate-1

[FR Doc. 96-18802 Filed 7-19-96; 2:31 pm]