2011-4455. Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds; Minimum Interest Rate

AGENCY:

Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION:

Final rule.

SUMMARY:

This final rule amends Treasury's marketable securities auction rules to establish a minimum interest rate of 1/8 of one percent for all new Treasury note and bond issues.

DATES:

Effective April 1, 2011.

ADDRESSES:

This final rule is available on the Bureau of the Public Debt's Web site at: http://www.treasurydirect.gov. It is also available for public inspection and copying at the Treasury Department Library, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. To visit the library, call [phone] for an appointment.

FOR FURTHER INFORMATION CONTACT:

Lori Santamorena, Chuck Andreatta, or Kevin Hawkins, Department of the Treasury, Bureau of the Public Debt, Government Securities Regulations Staff, [phone].

SUPPLEMENTARY INFORMATION:

The Department of the Treasury (“Treasury” or “We”) is issuing an amendment to 31 CFR 356.20(b) of the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds ^[1] (“UOC” or “Auction Rules”) to establish a minimum interest rate of 1/8 of one percent (i.e., 0.125 percent) for all new marketable Treasury note and bond issues. This amendment is not applicable to reopenings.^[2] In this rule we discuss how Treasury determines the interest rate for new note and bond issues, the reason for establishing a minimum interest rate, and the final amendment to the UOC.

I. Determining the Interest Rate for New Treasury Note and Bond Issues

In determining the interest rate for new note and bond issues, Treasury sets the interest rate at a 1/8 of one percent increment. The interest rate we establish produces the price closest to, but not above, par that corresponds to the yield awarded to successful competitive bidders.^[3] The interest rate in turn is used to establish the amount of the semi-annual interest payment that note and bond investors receive.^[4]

II. Establishing a Minimum Interest Rate

In an extremely low interest rate environment, a note or bond auction could result in an interest rate lower than Treasury's 1/8 of one percent interest rate increment. If that were to happen, under the current methodology the new security would be issued with a zero percent interest rate and would have no semi-annual interest payments. Treasury is amending the UOC because we believe it is preferable that Treasury notes and bonds pay regular, semi-annual interest payments.

III. Amendment to the Rule

Accordingly, Treasury is amending paragraph (b) of 31 CFR 356.20 to state that if a Treasury note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent with the price adjusted accordingly (i.e., at a premium). This change applies to all new marketable Treasury note and bond issues: Treasury fixed-principal ^[5] (also referred to as nominal) notes and bonds as well as Treasury inflation-protected notes and bonds.

Procedural Requirements

Executive Order 12866. This final rule is not a “significant regulatory action” pursuant to Executive Order 12866.

Administrative Procedure Act (APA). Because this rule relates to public contracts and procedures for United States securities, the notice, public comment, and delayed effective date provisions of the Administrative Procedure Act are inapplicable, pursuant to 5 U.S.C. 553(a)(2).

Regulatory Flexibility Act. As no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.

Paperwork Reduction Act. There is no new collection of information contained in this final rule, and, therefore, the Paperwork Reduction Act does not apply. The Office of Management and Budget has approved the collections of information already contained in 31 CFR part 356, under control number 1535-0112. Under the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number.

List of Subjects in 31 CFR Part 356

• Bonds
• Federal Reserve System
• Government Securities
• Securities

For the reasons set forth in the preamble, 31 CFR part 356 is amended as follows:

PART 356—SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS, NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT SERIES NO. 1-93)

1. The authority citation for part 356 continues to read as follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

2. Section 356.20 is amended by revising the introductory text of paragraph (b) to read as follows:

§ 356.20

How does the Treasury determine auction awards?

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(b) Determining the interest rate for new note and bond issues. We set the interest rate at a 1/8 of one percent increment. If a Treasury note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent, and successful bidders' award prices will be calculated accordingly (see appendix B to this part for formulas).

* * * * *

Richard L. Gregg,

Fiscal Assistant Secretary.

Footnotes

1.  See 58 FR 412, January 5, 1993. The circular, as amended, is codified at 31 CFR part 356. The UOC, together with the offering announcement for each auction, sets out the terms and conditions for the sale and issuance by the Treasury to the public of marketable book-entry Treasury bills, notes, and bonds.

2.  The term reopening is defined at 31 CFR 356.2 as the auction of an additional amount of an outstanding security.

3.  For example, the two-year note auction conducted on December 29, 2005, resulted in a yield of 4.404 percent. The interest rate was set at 43/8 percent with a price of 99.944505. See http://www.treasurydirect.gov/​instit/​annceresult/​press/​preanre/​2005/​ofk1229051.pdf.

4.  See Appendix B to part 356—Formulas and Tables.

5.  We use the term “fixed-principal” to distinguish such securities from “inflation-protected” securities. We refer to fixed-principal notes and fixed-principal bonds as “notes” and “bonds” in official Treasury publications, such as auction announcements and auction results press releases, as well as in the auction system.