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F E D E R A L R E S E R V E BA N K O F N E W Y O R K Fiscal Agent of the United States f Circular N o. 4 7 4 7 1 L June 4.1959 J OFFERING OF TW O SERIES OF TREASURY BILLS $1,200,000,000 of 91-Day Bills, Additional Amount, Series Dated March 12, 1959, Due Sept. 10, 1959 (To Be Issued June 11, 1959) $500,000,000 of 182-Day Bills, Dated June 11, 1959, Due December 10, 1959 T o A ll Incorporated B anks and T ru st Com panies, and Others C oncerned, in the Second Federal R eserv e D istrict: Following is the text o f a notice issued by the Treasury Department, released for publication in morning newspapers, Thursday, June 4, 1959: T h e T r e a s u ry D epa rtm en t, b y this p u b lic n otice, invites tenders fo r tw o series o f T r e a s u ry bills t o th e a g g reg a te am ou nt o f $1,700,000,000, o r th ereabouts, f o r cash and in ex ch a n g e for T r e a s u ry bills m aturing June 11, 1959, in the a m ou n t o f $1,701,228,000, as fo llo w s : 91-day bills ( t o m aturity da te) to be issued June 11, 1959, in the a m ou n t o f $1,200,000,000, o r th ereabouts, rep resen t in g an addition al a m ou n t o f bills dated M a rch 12, 1959, and to m ature S ep tem ber 10, 1959, o rig in a lly issued in the am ou nt o f $400,299,000, the addition al and origin al bills to be fre e ly in terch angeable. 182-day b ills, fo r $500,000,000, o r th ereabouts, to be dated June 11, 1959, and to m ature D e ce m b e r 10, 1959. T h e bills o f b oth series w ill be issued on a d iscou n t basis under com p etitive and n o n com p etitive b id d in g as h ereinafter p r o vided, and at m aturity th eir fa c e a m ou n t w ill b e payable w ith ou t interest. T h e y w ill be issued in bearer fo r m o n ly , and in d e n om in ation s o f $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (m a tu rity v a lu e ). T e n d e rs w ill be receiv ed at F ed eral R es e rv e B anks and B ran ches up to the clo s in g h our, o n e-th irtv o ’ c lo ck p.m ., Eastern D a yligh t S a vin g tim e, M on d a y . June 8, 1959. T e n d e rs w ill not be re ce iv e d at the T re a su ry D epa rtm en t, W a s h in g to n . E ach ten der m u st b e fo r an even m u ltip le o f $1,000, and in th e ca se o f com p e titiv e ten ders the price offered m u st be exp ressed on the b a sis o f 100, w ith n o t m o r e than th ree decim als, e.g., 99.925. F ra ctio n s m ay n ot be used. It is u rg ed that ten d ers b e m ade on the printed fo rm s and fo rw a rd ed in th e sp ecia l en v elop es w hich w ill be sup plied b y F ed era l R e serv e B an ks o r B ra n ch es on a pp lica tion th erefor. O th e rs than banking in stitu tions w ill n o t be perm itted to subm it ten ders e x ce p t fo r th eir o w n a ccou nt. T e n d e rs w ill be received w ith ou t dep osit fr o m in corp ora ted banks and trust c o m panies and fr o m resp on sib le and recog n ized dealers in investm ent securities. T e n d e rs fro m oth ers m u st be a ccom p a n ied b y p a y m en t o f 2 p ercen t o f the face a m ou n t o f T rea su ry bills applied for, unless the tenders are a ccom p a n ied b y an exp ress guaranty o f paym ent b y an in co rp o ra ted bank o r trust com p a n y . Im m ed ia tely after the clo s in g h our, tenders w ill be open ed at the F ed era l R e se rve B anks and B ra n ch es, fo llo w in g w hich public a n n ou n cem en t w ill be m ade b y th e T r e a s u ry D epa rtm en t o f the a m ou n t and price ran ge o f a ccep ted bids. T h o s e subm itting ten ders w ill be advised o f th e a ccep ta n ce o r rejection th ereof. T h e S ecreta ry o f the T rea su ry exp ressly reserves the righ t to a ccep t o r re je ct a n y o r all ten ders, in w h ole o r in part, and his action in a n y su ch resp ect shall b e final. S u b ject to these reserva tion s, n o n co m p e titiv e tenders fo r $200,000 o r less fo r th e add i tional bills dated M a rch 12. 1959, (91 days rem ain in g until m a tu r ity date on S ep tem ber 10, 1959) and n on com p etitive tenders fo r $100,000 o r less fo r the 182-day bills w ith ou t stated p rice fro m a n y on e b id d er w ill b e a cce p te d in fu ll at th e a verage p rice (in three d ecim a ls) o f a ccep ted co m p e titiv e b id s fo r th e re sp ective issues. S ettlem en t fo r a ccep ted ten ders in a cco rd a n ce w ith the bids m u st be m ade o r c o m p le te d at th e F ed eral R e serv e Bank on June 11, 1959, in cash o r oth er im m ediately available funds or in a like face a m ou n t o f T r e a s u ry bills m a tu rin g June 11, 1959. C ash and e x ch a n g e tenders w ill receiv e equal treatm ent. C ash ad ju stm en ts w ill b e m ade f o r d iffe re n ce s betw een th e par value o f m a tu rin g bills a ccep ted in e x ch a n g e and the issue price o f the n ew bills. T h e in com e derived fro m T rea su ry bills, w h eth er interest or gain fr o m the sale o r oth er d isp osition o f the bills, does n o t have any exem p tion , as such, and loss fr o m th e sale or oth er disp osi tion o f T r e a s u ry bills d oes n ot have a n y special treatm ent, as such, under the Internal R even u e C o d e o f 1954. T h e bills are su b ject to estate, inheritance, g ift o r o th e r e x cis e taxes, w hether Federal o r State, but are exem p t fro m all taxation n o w o r here after im p osed on the principal or in terest th ereof b y any State, o r any o f the p ossession s o f the U n ited States, o r b y a n y loca l ta x in g authority. F o r pu rp oses o f taxation th e a m ou n t o f d is cou n t at w h ich T r e a s u ry bills are origin a lly sold b y th e U nited States is con sid ered to be interest. U n der S ection s 4 5 4 (b ) and 1221(5) o f the In tern al R even u e C o d e o f 1954 the a m ou n t o f dis cou n t at w hich bills issued hereun der are sold is n o t con sid ered t o a ccru e until such bills are sold , red eem ed o r oth erw ise dis posed of, and such bills are ex clu d ed fr o m con sideration as capital assets. A c co r d in g ly , th e o w n e r o f T rea su ry bills (oth er than life in su rance com p a n ies) issued h ereu n der need in clude in his in com e ta x return o n ly the differen ce betw een the p rice paid fo r such bills, w h eth er on origin a l issue o r on subsequen t pu r chase, and the a m ou n t actu a lly receiv ed either u p on sale o r red em ption at m aturity d u rin g the taxable year fo r w h ich the return is m ade, as ord in a ry gain o r loss. T rea su ry D epa rtm en t C ircu la r N o . 418, R evised , and this n otice, prescrib e the term s o f th e T rea su ry bills and g o v e rn the co n d itio n s o f th eir issue. C op ies o f th e circu la r m ay be obtain ed fro m any Federal R e serv e B a n k o r B ranch. This Bank will receive tenders for both series up to 1 :30 p.m., Eastern Daylight Saving time, Monday, June 8, 1959, at the Securities Department o f its Head Office and at its Buffalo Branch. Tender forms for the respective series are enclosed. Please use the appropriate forms to submit tenders and return them in an envelope marked “ Tender for Treasury Bills.” Tenders may be submitted by telegraph, subject to written confirmation; they may not be submitted by telephone. Payment fo r the Treasury bills cannot be made by credit through the Treasury T a x and Loan Account. Settlement must be made in cash or other immediately available funds or in maturing Treasury bills. Results of the last offering of Treasury bills (91-day bills to be issued June 4, 1959, representing an additional amount of bills dated March 5, 1959, and maturing September 3. 1959; and 182-day bills dated June 4, 1959, maturing December 3, 1959) are shown on the reverse side of this circular. A lfred H a y e s , President. ( over) RESULTS OF LAST OFFERING OF TREASURY BILLS (TWO SERIES ISSUED JUNE 4, 1959) Range of Accepted Competitive Bids 91-Day Treasury Bills Maturing September 3,1959 182-Day Treasury Bills Maturing December 3,1959 A p p ro x . equiv. annual rate P rice A p p ro x . equiv. annual rate 99.2 10 3.125% 98.254b 3.454% ....................... ........ 99.200 3.165% 98.232 3.497% Average ................. ........ 99.204 3.149% 98.236 3.489% ........ High L ow P rice a E x c e p tin g three tenders tota lin g $240,000. b E x ce p tin g th ree ten ders tota lin g $600,000. (25 percent o f the amount o f 91-day bills bid for at the low price was accepted.) (70 percent o f the amount o f 182-day "bills bid fo r at the low price was accepted.) Total Tenders Applied for and Accepted (By Federal Reserve Districts) 91-Day Treasury Bills Maturing September 3,1959 A pplied f o r D istrict A ccep ted $ 11,934,000 New Y ork ..................... 773,066,000 805,959,000 348,666,000 ................. 25.844,000 9,869,000 5,641,000 591,000 Cleveland ....................... 26,410,000 21,410,000 17,986,000 7,661,000 ..................... 7,911,000 7,911,000 1,041,000 541,000 21,718,000 20,293,000 1,939,000 1,514,000 ......................... 187,865,000 120,615.000 66,133,000 10,662,000 St. Louis ....................... 13,064,000 12,564,000 2,443,000 2,243,000 9,506,000 7,956,000 3,115,000 1,475.000 Kansas C i t y ................... 34,525,000 29,275,000 4.946,000 3,168,000 Dallas .............................. 12,823,000 12,823,000 2,434,000 2,434,000 San Francisco ............... 86,066,000 72,603,000 23,201,000 19,355.000 Totals ............. $1,999,234,000 Philadelphia Richmond Atlanta ............................ . . Chicago Minneapolis ................... . . $ A pplied f o r 1,550,941,000 ............................ 22,561,000 A ccep ted 11,961,000 Boston $ 182-Day Treasury Bills Maturing December 3,1959 ' $l,100,346,000c $946,772,000 c Includes $177,536,000 noncom petitive tenders accepted at the average price o f 99.204. d Includes $17,495,000 noncom petitive tenders accepted at the average price of 98.236. $ 1,934,000 $400,244,000(l Oct ±1+1 F E D E R A L R E S E R V E BA N K O F N EW YORK June 8, 1959. T o A ll M em ber Banks o f the Second Federal R eserve D istrict: F o r you r inform ation, there is printed below the text o f a message on public debt management sent today b y the President o f the U nited States to the Congress. A dditional copies o f this letter w ill be furnished upon request. A lfred H ayes, P resident. THE WHITE HOUSE To the Congress o f the United S ta tes: Successful management o f the debt o f the Federal Government is one o f the most im portant foundation stones o f the sound financial structure o f our nation. The public debt must be managed so as to safeguard the public credit. It must be managed in a way that is consistent with economic growth and stability. It must also be managed as economically as possible in terms o f interest costs. The achievement o f these goals is complicated today by several factors, despite the fact that United States Government securities are the safest investment in the world. Our growing prosperity, combined with Government programs to support mortgages and other types o f debt obligations, has strengthened the position o f these mortgage and other investments with which the Treasury must compete when it sells Government securities. In addition, the rapid growth in borrow ing demands o f corporations, individuals, and State and local gov ernments (which issue tax-exempt obligations) tends to diminish the amount o f funds available fo r investment in direct Federal Government securities. Furthermore, the market fo r all fixed dollar obligations has been affected by a recent preference among some buyers fo r common stocks. The achievement o f a fiscal position that allows our revenues to cover our expenditures— as well as to p ro duce some surplus fo r debt retirement— will improve substantially the environment in which debt manage ment operates. Greater flexibility o f debt management action is required, however, under present-day conditions if a reasonable schedule o f maturities is to be maintained and the safeguards against inflation strengthened. I am, therefore, asking the Secretary o f the Treasury to transmit to the Congress today proposed legisla tion designed to improve significantly the Governm ent’s ability to manage its debt in the best interest of the nation. The legislation provides principally f o r : (1 ) Removal o f the present 3.26 percent interest rate ceiling on savings bonds. other changes, w ill reinvigorate the savings bond program. This, together with (2 ) Removal o f the present 4 % percent interest rate ceiling on new issues o f Treasury bonds. The present ceiling seriously restricts Treasury debt management and is inconsistent with the flexibility which the Secretary o f the Treasury has on rates_paid on shorter-term borrowing. (3 ) A n increase in the regular public debt lim it from $283 billion to $288 billion, and an increase in the tem porary lim it from $288 billion to $295 billion. These increases are essential to the orderly and prudent conduct o f the financial operations o f the Government, even with expenditures covered by revenues in the fiscal year 1960, as the budget proposes. ( over) Savings bonds Removal o f the present 3.26 percent maximum lim it on savings bond interest, together with certain other changes, will permit the Treasury to improve the terms o f savings bonds. This will strengthen the contribution o f the program both to habits o f th rift throughout the nation and to a better structure o f the public debt. The Treasury is proposing the follow ing revisions in the savings bond program , subject to approval o f enabling legislation: a 3 % percent interest rate to maturity fo r all Series E and 11 savings bonds sold on or after June 1, 1959; an im proved interest rate on all Series E and H bonds outstanding and con tinued to be h eld ; and im proved extension terms fo r outstanding Series E bonds when they mature. 4 /4 percent maximum interest rate on new bond issues There is no statutory maximum on the interest rate which can be paid by the Treasury fo r market able borrow ing o f 5 years or less (bills, certificates, and notes). The Secretary o f the Treasury should have similar flexibility with regard to Treasury bonds (which run 5 years or more to m aturity). The Treasury always tries to borrow as econom ically as it can, consistent with its other debt manage ment objectives. But in our dem ocracy no man can be compelled to lend to the Government on terms he would not voluntarily accept. Therefore, when the Government borrows, it can do so successfully only at realistic rates o f interest that are determined by the supply and demand fo r securities, as reflected in the prices and yields o f outstanding issues established com petitively in the Government securities market. I am aware o f the fa ct that many proposals have been made which are designed to produce lower interest rates. However, any debt management device which would seek to interfere with the natural interaction o f the competitive forces o f our free econom y and produce unnatural reductions in interest rates would not only breach the fundam ental principles o f the free market, but under current conditions could be drastically inflationary. The additional cost to the Government alone from increased prices o f the goods and services it must buy might far exceed any interest saving. The ultimate harm to the entire nation o f such a price rise could be incalculable. Market yields on a number o f Treasury bonds are already above 4^4 percent. W ith one exception all bonds which have 5 years or more to run to m aturity have market yields above 4 percent. The Treasury recently has done substantial short-term borrowing. But it must avoid undue shortening o f the public debt and therefore should continue to sell intermediate and longer-term bonds whenever market conditions per mit. It should not be prohibited from doing so by the existence o f an artificial ceiling which under to d a y ’s conditions makes it virtually impossible to sell bonds in the competitive market. Debt limit The T reasury’s current estimates, assuming that revenues cover expenditures fo r the fiscal year 1960 as a whole, indicate the need fo r an increase in the regular (or permanent) statutory public debt limit from $283 billion to $288 billion. The $288 billion figure is $13 billion above the permanent limit o f $275 billion in effect at the beginning o f the fiscal year 1959. This $13 billion increase is approxim ately equal to the Federal Government deficit during the current fiscal year, as estimated in the budget submitted in January. The Treasury expects the debt to approximate $285 billion on June 30, 1959, leaving about $3 billion leeway under the proposed $288 billion regular ceiling— a leeway which is essential to protect the Govern ment in case o f unforeseen emergencies and to provide necessary flexibility in debt management operations. Even with budget receipts covering expenditures in the next fiscal year the debt is expected to rise considerably above $288 billion next fall and winter as the Treasury borrows to cover seasonal needs. This seasonal borrowing can then be repaid before the end o f the fiscal year. I am asking, therefore, fo r a tem porary increase o f $7 billion in the public debt limit beyond the $288 billion permanent ceiling to cover those seasonal borrow ing needs. This tem porary limit would expire June 30, 1960, and can be reviewed p rior to that time. Certain other technical proposals to improve the management o f the public debt are also included in the proposed legislation. The enactment o f this program is essential to sound conduct o f the Governm ent's financial affairs. It will contribute significantly to the Treasury’s ability to do the best possible jo b in the management o f the public debt. I urge, therefore, that the Congress give prom pt consideration to this request. There is another matter to which I wish to call yo u r attention, quite apart from the legislative program discussed above. W hen I submitted my budget to you in January interest costs on the public debt for the fiscal year 1960 were estimated at $8 billion. The increase in interest rates that has taken place since that esti mate was made is now expected to add about half a billion dollars to this figure. A t the same time, however, I am inform ed that, because o f the strength o f economic recovery and growth beyond ou r earlier expectations, our revenue estimates fo r fiscal year 1960 will be sufficient to offset the increased interest cost on the public debt. DW IGH T D. EISENHOWER T h e W h it e H o u se , June 8, 1959.
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