In The Emergence of “Regular and Predictable” as a Treasury Debt Management Strategy, author Ken Garbade notes that the Treasury’s earlier practice of selling new notes and bonds on a “tactical,” or offering-by-offering, basis proved problematic by 1975, when the Treasury had to finance an unusually rapid expansion of the federal deficit. Investors were sometimes unprepared, causing market disruption.
By 1982, the Treasury had adopted a regular and predictable schedule of new note and bond offerings. The move, observes the author, was widely credited with reducing market uncertainty, facilitating investor planning and lowering the Treasury’s borrowing costs.
According to Garbade, there are three important implications of this process:
- because minimizing market uncertainty reduces the Treasury’s borrowing costs, regular and predictable issuance has become a pillar of the modern Treasury securities market,
- the transition to regular issuance illustrates the benefits of predictability in an environment of large deficits, and
- the emergence of regular and predictable issuance shows how policymakers can alter the practices of their institutions in response to change in the economic environment.
Ken Garbade is a vice president at the Federal Reserve Bank of New York.