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Fe d e r a l R e s e r v e b a n k o f Da l l a s
DALLAS. TEXAS 7 5 2 2 2

Circular No. 7k-2^2
September l6, 197^-

To All Banking Institutions and Others Concerned
in the Eleventh Federal Reserve District:
Quoted below is the text of a statement issued by the Treasury
Department today concerning the September refinancing.



The Treasury will auction under competitive and noncompetitive
bidding $2.0 billion, or thereabouts, of 2-year notes to refund the
the same amount of notes maturing September 30, 197^. The coupon
rate for the notes will be determined after tenders are allotted.
Some of the notes will be allotted to Government accounts and the
Federal Reserve Banks in exchange, on a noncompetitive basis, for
any portion of their $0.2 billion holdings of the maturing notes
that they choose to exchange.
The method of auction to be used for this issue of notes will
differ from that used for previous auctions of Treasury securities.
Competitive tenders for these new notes must be expressed in terms
of annual yield in two decimal places, e.g., 8 .^7 , rather than in
terms of a price, as has been the procedure in other auctions.
Tenders at the lowest yields, and noncompetitive tenders, will be
accepted to the extent required to attain the $2.0 billion offered.
After a determination is made as to which tenders are accepted, a
coupon yield will be determined to the nearest l/8 of 1 percent
necessary to make the average accepted price 100.00 or less. That
will be the rate of interest that will be paid on all of the notes.
Based on such interest rate, the price on each competitive tender
allotted will be determined and each successful competitive bidder
will pay the price corresponding to the yield he bid. Price
calculations will be carried to two decimal places on the basis of
price per hundred, e.g., 99-92j and the determinations of the
Secretary of the Treasury shall be final. Tenders at a yield that
will produce a price less than 99-51 will not be accepted.
The notes to be issued will be Treasury Notes of Series
J-1976 dated September 30, 197^5 due September 30, 1976 (CUSIP No.
912827 DX7) with interest payable semiannually on March 31 and
September 30. They will be issued in registered and bearer form

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

- 2 -

in denominations of $10,000, $100,000 and $1,000,000, and in
book-entry form to designated bidders. Delivery of bearer notes
will be made on or about October 8, 197^. A purchaser of bearer
notes may elect to receive an interim certificate on September 30,
which shall be a bearer security exchangeable at face value for
Treasury Notes of Series J-1976 when available.
Tenders will be received up to 1:30 p.m., Eastern Daylight
Saving time, Tuesday, September 2k, at any Federal Reserve Bank
or Branch and at the Bureau of the Public Debt, Securities Trans­
actions Branch, Washington, D. C. 20226; provided, however, that
noncompetitive tenders will be considered timely received if they
are mailed to any such agency under a postmark no later than Monday,
September 23. Each tender must be in the amount of $10,000 or a
multiple thereof, and all tenders must state the yield, if a
competitive tender, or the term "noncompetitive", if a noncompetitive
tender. The notation "TENDER FOR TREASURY NOTES" should be printed
at the bottom of envelopes in which tenders are submitted.
The Secretary of the Treasury expressly reserves the right to
accept or reject any or all tenders, in whole or in part, including
the right to accept more or less than $2,000,000,000 of tenders, and
his action in any such respect shall be final. Subject to these
reservations, noncompetitive tenders for $500,000 or less will be
accepted in full at the average price of accepted competitive tenders,
which price will be 100.00 or less.
Commercial banks, which for this purpose are defined as banks
accepting demand deposits, and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank of
New York their positions with respect to Government securities and
borrowings thereon, may submit tenders for the account of customers,
provided the names of the customers are set forth in such tenders.
Others will not be permitted to submit tenders except for their own
Tenders will be received without deposit from commercial and
other banks for their own account, Federally-insured savings and
loan associations, States, political subdivisions, or instrumental­
ities thereof, public pension and retirement and other public funds,
international organizations in which the United States holds member­
ship, foreign central banks and foreign States, dealers who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions with respect to
Government securities and borrowings thereon, Federal Reserve Banks,
and Government accounts. Tenders from others must be accompanied

-3by payment of 5 percent of the face amount of notes applied for.
Payment for accepted tenders must be completed on or before
Monday, September 30, 197^-. Payment must be made at the Federal
Reserve Bank or Branch or at the Bureau of the Public Debt in cash,
6io Treasury Notes of Series E-197^5 which will be accepted at par,
or other funds immediately available to the Treasury by that date.
Where full payment is not completed in funds available by the pay­
ment date, the allotment will be canceled and the deposit with the
tender up to 5 percent of the amount of notes allotted will be
subject to forfeiture to the United States.
The Treasury will construe as timely payment any check drawn
to the order of the Federal Reserve Bank or the United States
Treasury that is received at such bank or at the Treasury by Wed­
nesday, September 25, 197^> provided the check is drawn on a bank
in the Federal Reserve District of the bank or office to which the
tender is submitted. Other checks will constitute payment only if
they are fully and finally collected by the payment date. Checks
not so collected will subject the investor's deposit to forfeiture
as set forth in the preceding paragraph. A check payable other
than at a Federal Reserve Bank received on the payment date will
not constitute immediately available funds on that date.
Commercial banks are prohibited from making unsecured loans,
or loans collateralized in whole or in part by the securities bid
for, to cover the deposits required to be paid when tenders are
entered, and they will be required to make the usual certification
to that effect. Other lenders are requested to refrain from making
such loans.
All bidders are required to agree not to purchase or to sell,
or to make any agreements with respect to the purchase or sale or
other disposition of the notes bid for under this offering at a
specific rate or price, until after 1:30 p.m., Eastern Daylight
Saving time, Tuesday, September 2k, 197*+.
Combination tender forms/circular letters will be distributed
tomorrow. Please pay particular attention to the new basis of bidding
and the fact that delivery of bearer notes to be issued on September 30
will not be made until on or about October 8, 197*+.
Yours very truly,
P. E. Coldwell








The Treasury will refund the $2.0 billion of notes maturing
on September 30, 1 9 7 by auctioning $2.0 billion of 2-year notes
maturing September 30, 1976. This is the first rollover of the
quarterly cycle of 2-year maturities started in 1972. The auction
will be held on Tuesday, September 2k.
For the first time in a Treasury auction, bidding will be on a
yield basis rather than a price basis. Bidders are asked to state
the percentage yield they will accept to two decimal places, for
example 8.U7 percent. The coupon will be set, after the auction, to
the 1/8 of one percent which is nearest to the average yield on
accepted tenders and which produces an average price at or below par.
Each successful competitive bidder will pay the price equivalent to
his bid. Noncompetitive bidders will pay the average price.
The new bidding method will permit pricing close to par and
eliminate the risk of setting a coupon which, because of a change in
the market between the coupon announcement date and the auction date,
would result, on the one hand, in a price so far above par as to
discourage bidders or, on the other hand, result in a price so low
that the sale would have to be cancelled to avoid placing the
purchasers in an unanticipated tax position in which the excess of
the maturity value over the initial discount price would be taxable
as ordinary income.
To shorten the time between the auction date and the issue date,
coupon securities will not be delivered on the issue date of Septem­
ber 30. They will be delivered on or about October 8. However, any
successful bidder who needs a security for trading, collateral or
other purposes before the delivery date may request an interim cer­
tificate. Interim certificates will be bearer securities, equivilent in all respects to the 2-year Treasury notes except that they
will not have coupons attached and must be exchanged for regular
coupon securities in order to collect interest.
Each tender for the notes must be in the amount of $10,000 or
a multiple thereof, the same minimum tender required on Treasury
bills of a maturity up to one year. Previous auctions of two-year
notes have permitted tenders as low as $1,000, the minimum tender
normally required on sales of longer term Treasury bonds. The
decision to increase the minimum tender on this auction was taken in
the light of current liquidity drains on thrift institutions upon
which the nation depends for the bulk of its mortgage finance for