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Birth of a MarketThe U.S. Treasury Securities Market from the Great War to the Great Depression$

Kenneth D. Garbade

Print publication date: 2012

Print ISBN-13: 9780262016377

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016377.001.0001

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Treasury Debt Management during the New Deal

Treasury Debt Management during the New Deal

Chapter:
(p.279) 19 Treasury Debt Management during the New Deal
Source:
Birth of a Market
Author(s):

Kenneth D. Garbade

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262016377.003.0019

Abstract and Keywords

This chapter examines Treasury debt management during the New Deal, from the spring of 1933 to mid-1939. Treasury Secretary Morgenthau accomplished two debt management objectives that were most clearly evident at the start of the New Deal: lengthening the maturity of the debt and refinancing the last two Liberty Loans. He also recognized the importance of introducing a more flexible policy at the interface between Treasury cash management and Treasury debt management, and he developed a bond auction initiative to address that need. When the initiative failed, he fell back on the program of issuing tax date bills. In mid-1939 the two most significant shortcomings of Treasury debt management were the continued reliance on fixed-price sales of notes and bonds; and the failure to offer bonds with predictable maturities.

Keywords:   debt maturity, refinancing, cash management, bond auction, tax date bills, Treasury bonds

The strategic objectives of Treasury debt managers during the New Deal, from the spring of 1933 to mid-1939, hardly differed from those of Andrew Mellon and Ogden Mills during the Great Contraction. The need to finance chronic deficits, and the need to refinance increasing amounts of maturing debt, prompted continuing interest in extending maturities to avoid a pileup of short-term obligations that might set the stage for a funding crisis. Officials were also mindful that the $6.3 billion Fourth Liberty Loan would mature in 1938. The loan was too large to pay off in a single operation and would have to be refinanced into more manageable issues prior to maturity, as had been the case with the Second and Third Liberty Loans and the Victory Liberty Loan a decade earlier. (The First Liberty Loan was less of a problem. It was relatively small, only $2 billion, and did not mature until 1947, although the low level of interest rates that prevailed after 1934—see figure 19.1—made refinancing the First Liberties fiscally attractive.) William Woodin, Roosevelt’s first Secretary of the Treasury, and Henry Morgenthau, who followed Woodin when Woodin resigned for health reasons in January 1934, did not break new ground in Treasury debt management, but they did restart the Mellon/Mills program of extending the maturity of Treasury debt and they successfully refinanced the Liberty Loans.

Woodin and Morgenthau also continued the regular weekly sales of Treasury bills pioneered by Mellon and Mills. Total bill indebtedness rose to almost $2 billion at the beginning of 1935. (It was $640 million when Roosevelt took office.) In the course of expanding the bill program, Morgenthau experimented with 26- and 39-week bills in lieu of 13-week bills but returned to the shorter maturity in late 1937.

Morgenthau additionally experimented with Treasury cash management policies. Most important, in 1935 he began auctioning long-term bonds in relatively small, $100 million lots between quarterly tax dates to raise money on an “as needed” basis. Unfortunately, the effort was marked by incompatible objectives—selling long-term bonds with an auction process that (as discussed below) depended on banks and dealers underwriting the Treasury’s offerings was inherently incompatible with raising money “as needed”—and quickly failed. In late 1935 Morgenthau reinstated, with much greater success, the original Mills program of raising money between tax dates by selling Treasury bills that matured on or shortly after future tax dates. The success of the tax date bill program demonstrated the utility of Mills’s conception, but the program became superfluous and was terminated in 1938 when other relatively steady sources of funds, including social security wage taxes and proceeds from sales of savings bonds, became available.

By mid-1939 Treasury debt was at an all-time high of almost $40 billion, financed (as shown in figure 19.2) primarily with bonds, but also with bills, notes and nonmarketable securities. Bills were sold weekly, notes and bonds (p.280)

Figure 19.1 Yields on Treasury securities

Figure 19.1 Yields on Treasury securities

Figure 19.2 Composition of Treasury debt, mid-1933 to mid-1939

Figure 19.2 Composition of Treasury debt, mid-1933 to mid-1939

(p.281) were sold at quarterly tax dates, and nonmarketable securities, including savings bonds and special issues for federal trust funds, were issued as needed.

Maturity Extension, 1933 and 1934

Debt extension was inconceivable when Franklin Roosevelt took office. Simply keeping the federal government adequately funded after the national bank holiday was quite enough of a miracle and it is hardly surprising that Treasury officials relied primarily on short-term debt in the spring of 1933. In the March tax date financing, the Treasury sold $469 million of unusually short 5-month certificates of indebtedness and $473 million of 9-month certificates. Between March 4 and May 6, Treasury bills outstanding expanded by more than $300 million, from $640 million to $980 million.

Nevertheless, it wasn’t long before commentators began to revisit the topic of debt extension. As early as April 2, The New York Times reported “a well-defined opinion that the time is approaching when long-term financing—put aside since September 15, 1931, because of the unsettled conditions of the money market—will be resumed for the purpose of reducing the short-dated debt to more manageable proportions ….”1 In July, The Wall Street Journal reported that “Public debt is considered by Treasury officials as off-balance as between long and short term obligations ….”2

Between the spring and fall of 1933, the Treasury cautiously tested the market for longer-term securities. As shown in figure 19.3, the Treasury sold 3-year notes in May, 5-year notes in June, and 8-year bonds in August. The August offering was the first bond sale in almost two years. Secretary Woodin described the offering as “important” and marking “a further step in placing government finance on a broader and more stable base.”3 The Wall Street Journal characterized it as a “feeler”: “If the public response … is considerable, another, and larger bond issue will likely follow ….”4 The Treasury received almost $3 billion of subscriptions for the $500 million of bonds that it offered (The New York Times reported that Woodin “took no chances with his first bond offering” and that the 3¼ percent coupon rate was “highly pleasing to the market”5) and Woodin followed up in October with a 12-year bond. (p.282)

Figure 19.3 Term to maturity of new offerings of coupon-bearing Treasury debt

Figure 19.3 Term to maturity of new offerings of coupon-bearing Treasury debt

Treasury’s maturity extension program stalled after the October offering, when the ill-conceived RFC gold purchase program disrupted the market and led to a fall in bond prices.6 (As shown in figure 19.1, Treasury bond yields rose from 3.20 percent in October to 3.50 percent in January 1934.) Officials offered only a 1-year certificate of indebtedness in the December tax date financing and followed with a 7½-month certificate and a 13½-month note in a late January 1934 financing. Administration officials were reported to believe that the Treasury could not issue long-term bonds except at interest rates that would cause “a downward movement in [outstanding Treasury securities] and would have a very considerable adverse effect on the banks which own a large amount [of the securities].”7 As in the spring of 1933 the Treasury increased its reliance on bills at the same time that it was selling shorter term coupon-bearing debt: the volume of bills outstanding rose from $950 million in early December 1933 to $1.4 billion in late February 1934.

Conditions in the bond market began to improve after the January 31, 1934, revaluation of gold to $35 per fine ounce, and Treasury officials gradually revived the maturity extension program, issuing 3-year notes in February, 4-year notes in March, 12-year bonds in April, 14-year bonds in June, and 18-year bonds in December.

(p.283) Refinancing the Liberty Loans

Treasury officials refinanced the First and Fourth Liberty Loans more or less as they had refinanced the Second and Victory Liberty Loans: by announcing a call for early redemption of some or all of the bonds and then offering to exchange new securities for the called bonds. Boxes 19.1 and 19.2 summarize the calls and exchange offerings.8

Treasury officials added two new features to the Liberty Loan refinancings. Simultaneously with the first call for early redemption of the Fourth Liberty Loan, the Treasury offered to exchange a 12-year bond for the called and uncalled Fourth Liberties.9 The new bond paid 4¼ percent interest the first year and 3¼ percent per annum thereafter. The extra one hundred basis points of interest in the first year was a “sweetener,” intended to mollify bondholders who might otherwise be reluctant to exchange Fourth Liberties, which paid a 4¼ percent coupon, for a new bond paying only 3¼ percent. The Treasury never again issued a split-coupon bond.

The second innovation came in the course of setting the terms of the September 1934 exchange offer for the second tranche of Fourth Liberties called for early redemption (commonly referred to as the “second called Fourth Liberties”). Officials wanted to offer another intermediate-term bond but a weak market left then uncertain about the likely success of a bond offering.10 To limit the likelihood of a poorly received offer (and a large demand for cash redemption of the second called Fourth Liberties), officials offered to exchange either 4-year notes or 12-year bonds for the Fourth Liberties.11 This was the first dual-option exchange offer. The Treasury repeated the technique in a June 1935 exchange offer for First Liberty bonds, in a September 1935 (p.284) exchange offer for the last tranche of Fourth Liberty bonds, and in eight subsequent exchange offers between December 1935 and September 1938. Treasury officials extended the idea further in December 1938, when they made a triple -option offer, offering to exchange a 5-year note, a 9-year bond, or a 27-year bond for a maturing note.12 The Wall Street Journal called the (p.285) triple-option offer an “innovation” that was “regarded in Government bond circles as a recognition by the Treasury of the varied investment tastes” of the owners of Treasury securities.13 (Contemporaneous commentators did not, however, take note of the fact that multiple-option exchange offers weakened the ability of Treasury debt managers to manage the maturity structure of the national debt.14) Multiple-option exchange offers remained a feature of Treasury exchange offers through the 1960s.15 (p.286)

The 1935 Bond Auctions

In late May 1935 the Treasury auctioned $100 million of 13-year bonds,16 the first auction offering of coupon-bearing securities since the 50-year Panama Canal bonds in 1911. Investors submitted tenders for $270 million of the new bonds and the Treasury accepted $98.8 million of the tenders, at prices ranging from 10326 (103 and 26–32nds percent of par value) down to 1031.17

The auction met—but did not materially exceed—the expectations of Treasury officials.18 The sale reopened an $825 million issue that was first sold in a joint cash and exchange offering in June 1934. The outstanding bonds traded in the secondary market at 10326 the day before the announcement of the auction and at 10316 the day before the auction. The average accepted auction price was 1034. The New York Times reported that “officials took into consideration the fact that it was a new venture in which the investors were not skilled and felt that under the circumstances the sale of about $100,000,000 of the bonds at about the market price was a favorable accomplishment. If any (p.287)

Table 19.1 Treasury bond auctions in 1935

First auction

Second auction

Third auction

Fourth auction

Fifth auction

Bond

Coupon (%)

3

3

2⅞

2⅞

2⅞

Maturity

Jun 15, 1948

Jun 15, 1948

Mar 15, 1960

Mar 15, 1960

Mar 15, 1960

Amount ($million)

100

100

100

100

100

Announcement

May 27

Jun 24

Jul 15

Jul 29

Aug 12

Auction

May 29

Jun 26

Jul 17

Jul 31

Aug 14

Settlement

Jun 3

Jul 1

Jul 22

Aug 5

Aug 19

Amount bid ($million)

270

461

510

321

147

Amount issued ($million)

99

113

102

106

98

Auction bid prices

High

10326

10324

10127

10124

1018

Average

1034

10318

10119

10118

10025

Stop

1031

10317

10119

10117

10021

Secondary market price on day prior to auction

10316

10320

10121

10119

101

Sources: Treasury Circular no. 541, May 27, 1935, reprinted in 1935 Treasury Annual Report, p. 223; 1935 Treasury Annual Report, p. 225; Treasury Circular no. 544, June 24, 1935, reprinted in 1935 Treasury Annual Report, p. 227; 1935 Treasury Annual Report, p. 228; Treasury Circular no. 546, July 15, 1935, reprinted in 1936 Treasury Annual Report, p. 217; 1936 Treasury Annual Report, p. 219; Treasury Circular no. 547, July 29, 1935, reprinted in 1936 Treasury Annual Report, p. 219; 1936 Treasury Annual Report, p. 220; Treasury Circular no. 548, August 12, 1935, reprinted in 1936 Treasury Annual Report, p. 220; 1936 Treasury Annual Report, p. 221, and New York Times, various dates.

disappointment was felt, it was because a large oversubscription had not been received at somewhat over 103.”19

The reintroduction of bond auctions was a major initiative in Treasury debt management. The Wall Street Journal enthusiastically described the new procedure as an “innovation,” but Secretary Morgenthau more guardedly characterized it as an “experiment.”20 Treasury officials were sufficiently encouraged by the results to bring two additional auction offerings in June and July 1935. As summarized in table 19.1, the second offering was for another $100 million of the same 13-year bond and attracted bids for $461 million. The third offering was for $100 million of a 25-year bond and attracted $510 million in (p.288) bids.21 In both auctions the average sale price was only two 32nds of a percent of principal value below the secondary market price on the day prior to the auction. Secretary Morgenthau characterized the results of the third auction as “very satisfactory” and The New York Times reported that “there was every indication that the competitive bidding policy … would be continued.”22

Why Did the Treasury Reintroduce Auction Sales of Bonds?

Although the Treasury auctioned bonds in seven out of ten offerings between 1894 and 1911,23 it switched to fixed-price offerings during World War I to effect a wider distribution of the war debt and it continued to rely on subscription sales of coupon-bearing securities thereafter. Thus the question naturally arises: Why did the Treasury reintroduce bond auctions in 1935?

Secretary Morgenthau decided to auction bonds for two reasons: he wanted to issue notes and bonds on a tactical, discretionary basis, and he wanted a more efficient primary market pricing mechanism.

It was clear by 1935 that selling Treasury notes and bonds in fixed-price offerings was costly to taxpayers. Treasury officials sold new issues at par but specified coupon rates that exceeded secondary market yields to limit the risk of a failed offering.24 Figure 19.4 is the proof of the pudding: investors commonly subscribed for vastly more securities than the Treasury offered. The Wall Street Journal said of the new auction process: “by letting purchasers set the prices …., it will be possible to come closer to the market than under the usual method of offering bonds at par.”25 Morgenthau stated similarly that “through the sale of bonds on a competitive basis a better rate could be obtained for the government ….”26

Morgenthau was also interested in moving away from the practice, introduced by Secretary Mellon in the 1920s, of selling coupon-bearing securities on a regular schedule. In late May 1935, The New York Times reported Morgenthau as saying that the program of issuing securities at only the (p.289)

Figure 19.4 Amount offered, issued, and subscribed in fixed-price Treasury cash subscription offerings

Figure 19.4 Amount offered, issued, and subscribed in fixed-price Treasury cash subscription offerings

quarterly tax dates had been abandoned and that securities “would be ordered when it appeared that the Treasury needed the money to finance governmental activities ….”27

The idea of borrowing money “as needed” was cited repeatedly during the early summer of 1935. In mid-July The New York Times took note of the new Treasury policy of avoiding “heavy lump borrowings” and The Wall Street Journal stated that “The Treasury will conduct its cash borrowing operations in coming months as far as possible through small and frequent issues rather than through large sales of securities on quarterly financing dates …. This more flexible method will have the advantage over quarterly sales of cumbersome size in that it will enable the Treasury to keep its borrowings strictly in line with spending needs.”28

Auction Weakness

The second Treasury bond auction followed the first by four weeks, the third followed the second by three weeks, and the gap narrowed to two weeks when (p.290) Morgenthau announced the fourth auction: a second tranche of $100 million of 25-year bonds. The results of the fourth auction were about the same as the third in terms of price, but bidding was more restrained. The Treasury received tenders for only $321 million of bonds in the fourth auction.

The fifth auction—for $100 million of a third tranche of 25-year bonds—followed the fourth auction by two weeks and produced results that were distinctly less favorable. The announcement that the Treasury would offer more 25-year bonds caught market participants by surprise—they had been expecting a shorter maturity—and led to sharply lower prices in secondary market trading. Outstanding 25-year bonds traded down 11–32nds, to 1014 following early news of the forthcoming auction.29 The accelerating pace of new bond issues dampened investor interest—the bond market was described as “tired”—and dealers, still holding significant positions from the fourth auction, were reluctant to bid for more of the same.30 The Treasury received tenders for only $147 million of bonds and ended up selling $98 million at an average price of 10025, almost a quarter of a point below where outstanding bonds closed in secondary market trading on the day before the auction.

Morgenthau claimed to be “satisfied” with the results of the fifth auction but The Wall Street Journal suggested the sale “was not a brilliant success.”31 A 1940 Treasury staff report stated that the auction method “became increasingly unpopular [in August 1935], as indicated by the criticism which developed in the market and also by the fact that both the total tenders and the number of tenders received for the last two offerings were sharply lower than for the two immediately preceding.”32

A Failed Auction

At the beginning of August the new Treasury auction process appeared to be a success. It banished the chronic over-subscriptions that plagued fixed-price offerings and it produced primary market prices comparable to secondary market prices. By the middle of the month, however, market participants were beginning to complain about the unpredictability of the offerings. Then, in late August, the Treasury pushed the auction experiment a little too hard and produced a failed auction that ended the experiment.

(p.291) On Monday, August 26, the Treasury announced an auction offering of $100 million of 4-year Federal Farm Mortgage Corporation (FFMC) bonds that were fully and unconditionally guaranteed as to both principal and interest by the United States.33 Deciding where to bid the new offering was complicated by the absence of secondary market trading in any comparable FFMC bonds.34 To make matters worse, the auction closed on Wednesday, August 28, in the middle of the last week before the Labor Day weekend, at a time when many market participants were on vacation.35 The Treasury received tenders for only $85.6 million of the bonds. Officials tried to put a good face on the outcome, but Morgenthau admitted that “it wasn’t so good.”36

The failure of the FFMC auction triggered a cascade of criticism of the new auction process. The New York Times reported that “government bond dealers have frowned for some time upon the Treasury Department’s policy of distributing securities by auction sales” and stated that “the result of the sale definitely reflected the disapproval by the banking world to this method of offering securities.”37 The Wall Street Journal was explicit about one source of dealer dissatisfaction:

Bond dealers who ordinarily subscribe heavily to issues priced at par [in subscription offerings] and who obtain a considerable profit through quick turnovers did not like the auction system. Compelled to bid at the market, they were unable to get the usual profit provided by the Treasury in issuing securities at par with coupon rates slightly above market yields.38

The mid-August Treasury bond auction was the last auction offering of coupon-bearing Treasury securities for more than a quarter of a century. Morgenthau was initially reluctant to abandon the auction system for bonds,39 but by late October The New York Times was reporting that he had decided to rely solely on fixed-price bond offerings in the future.40

(p.292) Why Did the Auction Process Fail for Bonds?

Morgenthau’s attempt to reintroduce bond auctions to the Treasury market ended in failure because it tried to fuse two inherently incompatible mechanisms: auctioning long-term securities and raising funds “as needed.”

Treasury bond auctions are strikingly different from fixed-price offerings of bonds with yields purposely set above market-clearing levels. Auction market participants have to be far more knowledgeable about the state of investor demand if they are to place bids that are rich enough to be accepted, but not so rich that they end up buying bonds at prices in excess of where the bonds will trade in subsequent secondary market transactions. As a practical matter, the Treasury had to rely on government bond dealers and large banks—the only market participants with the requisite knowledge—to underwrite its auction offerings. A 1940 Treasury staff report acknowledged that auction participation was “sharply restricted” because “many banks and investors outside of the largest centers felt that they were not in a position to gage the market with any degree of accuracy ….”41 The report further observed that market participants outside of the money centers who did submit bids “generally paid the highest prices. The largest portion of the new issues awarded above the average price … went to bidders outside of New York City, while most of the amounts awarded at or below the average went to banks, brokers, and dealers in New York.”

The need to rely on dealers and large banks was not, in itself, fatal to the auction process; the Treasury had been auctioning bills successfully since 1929, primarily through dealers and large banks.42 But bill auctions had an important characteristic not shared by the bond auctions: they came on a regular (weekly) basis and bill dealers could manage their inventories to avoid being caught with large positions when the Treasury came to market (as happened in the fifth bond auction). In addition bills were inherently less risky than bonds (because they had shorter maturities), so dealers could be more tolerant of unexpected Treasury decisions with respect to bill sales. Despite the sensitivity of auction market participants to surprises concerning bond (p.293) offerings, Treasury officials exercised substantial discretion in deciding when to sell bonds. The 1940 Treasury staff report observed that, “After the first issues, the market became somewhat nervous over the extent to which the tender method was to be employed. Due to uncertainty as to the time, size, and frequency of such offerings, they had the same effect on the market as if a known seller was waiting to dispose of a very substantial block of bonds at any time.”43

Morgenthau erred when he tried to combine (1) discretionary offerings to raise money “as needed” with (2) auction sales of bonds. He could have raised money on a discretionary basis with bill auctions (and, as noted below, did so soon after he abandoned bond auctions), and he could have auctioned bonds on a regular and predictable basis (as was ultimately done by Paul Volcker in the first half of the 1970s44), but he couldn’t raise money on a discretionary basis with bond auctions.

A Return to Tax Date Offerings of Notes and Bonds

In April 1936 Secretary Morgenthau announced that the Treasury would no longer issue notes and bonds to raise funds “as needed,” but rather would confine sales of coupon-bearing securities to the quarterly tax dates. “That makes the situation more orderly,” he said. “It gives investors a certainty as to when issues will be made.”45

Figure 19.5 shows the maturities of note and bond offerings from 1935 to mid-1939. Except for a pause following a rise in bond yields in mid-1937 that resulted from an increase in Federal Reserve reserve requirements,46 the Treasury persisted in its efforts to lengthen the maturity of the debt by selling intermediate- and long-term bonds.47

Tax Date Bills

Morgenthau’s decision to abandon bond auctions as a source of “as needed” financing reopened the question of how to raise money between quarterly tax (p.294)

Figure 19.5 Term to maturity of new offerings of coupon-bearing Treasury debt (through mid-1939). Auction offerings shown with a cross (×), fixed-price cash offering for settlement on other than a tax date shown with a plus (+). All other offerings are fixed-price tax date offerings, either for cash or in exchange for outstanding securities.

Figure 19.5 Term to maturity of new offerings of coupon-bearing Treasury debt (through mid-1939). Auction offerings shown with a cross (×), fixed-price cash offering for settlement on other than a tax date shown with a plus (+). All other offerings are fixed-price tax date offerings, either for cash or in exchange for outstanding securities.

dates. He resolved the problem even before it was clear that he had abandoned bond auctions.

On Thursday, September 26, 1935, the Treasury announced that it would auction $50 million of a 166-day Treasury bill maturing on Monday, March 16, 1936. Auction tenders were due at or before 2 p.m. on Monday, September 30, 1935, and the bills would be issued two days later, on October 2. The Treasury had, of course, been auctioning bills since 1929. The distinctive feature of the new bill was its maturity date: the issue date of the (as yet unannounced) March 1936 tax date offering. Over the next eight weeks the Treasury offered an additional $400 million of bills, $50 million per week, all maturing on March 16, 1936. The bills was refinanced in the March tax date offering when—in the largest cash sale of securities since the Liberty Loan campaigns—the Treasury sold $629 million of 5-year notes and $727 million of 15-year bonds.48 (p.295)

Figure 19.6 Term to maturity of new offerings of tax date Treasury bills

Figure 19.6 Term to maturity of new offerings of tax date Treasury bills

The October and November 1935 program to raise money by issuing bills maturing in mid-March 1936 was a direct application of Ogden Mills’s original, 1929, vision of how bills could be used to enhance the efficiency of Treasury cash management. In April 1936 Morgenthau announced a second series of tax date bills: $50 million per week, to mature on December 15, saying that “this method of financing gives us the elasticity we need” in funding expenditures between the tax dates.49

Between the fall of 1935 and the spring of 1938, the Treasury issued eight series of tax date bills. As shown in figure 19.6 and table 19.2, bill maturities varied from 71 days to 223 days and the aggregate amount of a series varied from $250 million to $450 million. After the second series the Treasury staggered the maturity dates of the bills to days after taxes were due. For example, $100 million of the March 1937 tax date bills matured on Tuesday, March 16, $100 million matured on March 17, and $100 million matured on March 18. This facilitated bill redemptions out of tax receipts at times when the Treasury chose not to offer any notes or bonds for cash.50 (p.296)

Table 19.2 Tax date Treasury bills

Series maturing March 1936

  • Issued between October 2 and November 27, 1935, maturing March 16, 1936

  • Nine issues, $50 million each, total of $450 million

Series maturing December 1936

  • Issued between May 6 and June 24, 1936, maturing December 15, 1936

  • Eight issues, $50 million each, total of $400 million

Series maturing March 1937

  • Issued between December 2, 1936, and January 6, 1937, maturing March 16, 17, and 18, 1937

  • Six issues, $50 million each, total of $300 million

Series maturing June 1937

  • Issued between March 3 and April 7, 1937, maturing June 16, 17, and 18, 1937

  • Six issues, $50 million each, total of $300 million

Series maturing September 1937

  • Issued between April 21 and June 2, 1937, maturing September 16, 17, and 18, 1937

  • Seven issues, $50 million each, total of $350 million

Series maturing December 1937

  • Issued between July 14 and September 8, 1937, maturing December 16, 17, 18, 20, and 21, 1937

  • Nine issues, $50 million each, total of $450 million

Series maturing March 1938

  • Issued between October 27 and December 15, 1937, maturing March 16, 17, 18, and 19, 1938

  • Eight issues, $50 million each, total of $400 million

Series maturing June 1938

  • Issued between March 2 and March 30, 1937, maturing June 16, 17, and 18, 1936

  • Five issues, $50 million each, total of $250 million

Source: Treasury Annual Reports.

By the end of 1937 the Treasury was receiving a significant flow of funds at times other than quarterly tax dates from social security wage taxes and proceeds from sales of savings bonds.51 The value of raising money more or less continuously in relatively small amounts in the bill market declined and the Treasury did not issue tax date bills after the last series matured in June 1938.

Regular Bills

Even while it was experimenting with bond auctions and tax date bills as sources of “as needed” financing, the Treasury continued to sell bills on a regular weekly basis as part of its debt management operations. (p.297)

Figure 19.7 Treasury bills outstanding (exclusive of tax date bills)

Figure 19.7 Treasury bills outstanding (exclusive of tax date bills)

Figure 19.7 shows the variation in the quantity of Treasury bills outstanding during the New Deal, exclusive of tax date bills. As was noted earlier in this chapter, the Treasury expanded its bill financings in the spring of 1933 (during the initial recovery from the bank holiday), in the winter of 1933–34 (when the RFC gold purchase program disrupted the bond market), and again in the fall of 1934 (during a third episode of rising bond yields). However, it engineered the expansions in three different ways.

The spring 1933 expansion was accomplished by increasing the number of “cycle weeks” in which the Treasury issued 13-week bills. By the last quarter of 1932 the department was issuing bills in eight out of every thirteen cycle weeks (see figure 18.2). As shown in figure 19.8, the Treasury added four more cycle weeks in the spring of 1933. The additional cycle weeks allowed the Treasury to raise $335 million in new money.52 By mid-1933 the only week the Treasury wasn’t selling 13-week bills was the 11th cycle week, which fell in the middle of the third month of a quarter, when quarterly tax payments were due and the Treasury regularly issued notes and bonds.

The winter 1933–34 expansion, when bills outstanding rose from less than $1 billion in early December to $1.4 billion in late February, was accomplished by increasing the quantity of bills issued each week. In some weeks the Treasury simply issued more 13-week bills than it redeemed, but it other weeks the Treasury issued both 13- and 26-week bills. (p.298)

Figure 19.8 Weekly sales of 13-week Treasury bills. Cycle index 1 denotes the week beginning Monday, January 2, 1933, and every thirteenth week thereafter. Cycle index 2 denotes the week beginning Monday, January 9, 1933, and every thirteenth week thereafter. Subsequent cycles are defined analogously.

Figure 19.8 Weekly sales of 13-week Treasury bills. Cycle index 1 denotes the week beginning Monday, January 2, 1933, and every thirteenth week thereafter. Cycle index 2 denotes the week beginning Monday, January 9, 1933, and every thirteenth week thereafter. Subsequent cycles are defined analogously.

In June 1934, the Treasury stopped issuing 13-week bills and issued only 26-week bills (see figure 19.9). From mid-1934 to early 1935, the Treasury regularly sold $75 million of 26-week bills every week and total bills outstanding grew to about $2 billion ($75 million per week for 26 weeks = $1.95 billion).

In early 1935, the Treasury decided to extend bill maturities further, to 39-weeks, while cutting weekly issue sizes to $50 million and maintaining total outstandings at the $2 billion level.53 (The Treasury also issued eight 19-week bills between May 22 and July 10, 1935, inclusive, to fill in maturities missed during the transition to 39-week bills.) The program of funding $2 billion of Treasury debt with weekly issues of $50 million of 39-week bills continued until the fall of 1937.

Reinstating 13-Week Bills

In the summer and fall of 1937 Treasury and Federal Reserve officials undertook a fundamental reexamination of the Treasury’s short-term financing program. (p.299)

Figure 19.9 Term to maturity of new offerings of regular Treasury bills

Figure 19.9 Term to maturity of new offerings of regular Treasury bills

As shown in figure 19.10, average auction discount rates moved up sharply early in 1937, primarily as a result of increases in Federal Reserve reserve requirements. Federal Reserve officials became increasingly concerned with a decline in the liquidity of the bill market and conjectured that 39-week bills might be “too long” to be attractive to many market participants seeking a liquid investment.54 W. Randolph Burgess, manager of the Federal Reserve’s System Open Market Account (and a vice president of the Federal Reserve Bank of New York), observed that bill dealers like Discount Corporation and Salomon Brothers were prepared to “bid freely for substantial amounts of [3- or 6-month bills], but they would deal cautiously for limited amounts of nine months bills. They said that at all times the demand for the nine months bills is spotty.”55 (p.300)

Figure 19.10 Average Treasury bill auction discount rates, 1933 to mid-1939. Auctions on March 3, 1933, at 4.26 percent, March 20, 1933, at 1.83 percent, March 27, 1933, at 1.72 percent, and April 3, 1933, at 1.35 percent, not shown.

Figure 19.10 Average Treasury bill auction discount rates, 1933 to mid-1939. Auctions on March 3, 1933, at 4.26 percent, March 20, 1933, at 1.83 percent, March 27, 1933, at 1.72 percent, and April 3, 1933, at 1.35 percent, not shown.

Concurrently Treasury officials expressed concern that participation in bill auctions was limited to the large New York banks and government securities dealers and that small banks had “steadily refused to bid on Treasury bills.”56 Burgess suggested that there were two reasons for the concentration.57 First, bill yields were so low that only money center banks (who used bills to adjust their reserve positions from day to day and who consequently placed a high value on liquidity) found them attractive.58 Second,

… the mechanism of bidding is difficult for those outside of the money market. The rates at which bills are sold change from time to time with considerable rapidity, and only those who are (p.301) in close touch with changes in money conditions feel able to estimate these trends. Out-of-town banks which have tried bidding for bills report that their bids have been unsuccessful or that they have bid too high and have paid more for the bills than more well-informed bidders.59

In mid-September 1937 Secretary Morgenthau announced a program aimed at identifying whether “the kind of bills we are selling are the best for the country.”60 The Wall Street Journal reported that the Treasury was considering offering “weekly certificate issues carrying fixed interest rates rather than weekly bill offerings” in an attempt to attract greater participation by small banks in the primary market for short-term Treasury securities.61

The debate within the Treasury and the Federal Reserve continued through November, with a growing number of officials concluding that, on balance, bills provided an inexpensive source of funds and were useful to market participants.62 The question was finally settled in early December when Morgen-thau announced that the department would begin issuing 13-week bills on a regular weekly basis at the end of the month. Bills, he said, “are a good kind (of securities) to use. There is a great shortage of that type of paper on the market.”63 By mid-1938 the Treasury was regularly issuing $100 million of (p.302) 13-week bills every week (figure 19.9) and the quantity of outstanding bills stabilized at $1.3 billion in early September (figure 19.7).64

Concluding Remarks

Perhaps the most surprising aspect of Treasury debt management at the end of the 1930s is the absence of any significant evolution after early 1933. One might have reasonably expected some substantial innovation over the course of a six-year period during which, for the first time, the Federal government ran chronic deficits in the absence of war. Nevertheless, by mid-1939 the Treasury was issuing notes and bonds on quarterly tax dates (a Mellon innovation of the 1920s) and 13-week bills weekly (the structure Mellon and Mills were moving toward in 1931 and 1932).

However, Morgenthau did accomplish the two debt management objectives that were most clearly evident at the start of the New Deal: lengthening the maturity of the debt and refinancing the last two Liberty Loans. Additionally he recognized the importance of introducing a more flexible policy at the interface between Treasury cash management and Treasury debt management, and he developed a bond auction initiative to address that need. When the initiative failed (on account of the attempt to fuse two incompatible objectives), he fell back on Mills’s original program of issuing tax date bills. Tax date bills might have been a lasting legacy of New Deal cash management, but were ultimately rendered superfluous by the introduction of other sources of relatively continuous funding.

In mid-1939 the two most significant shortcomings of Treasury debt management were (1) the continued reliance on fixed-price sales of notes and bonds and (2) the failure to offer bonds with predictable maturities. With respect to the latter shortcoming, the Treasury probably regressed during the 1930s. Although officials offered bonds on a regular schedule, they aggressively varied the maturities of their offerings in light of market conditions, shortening up when bond yields rose in the winter of 1933–34 and in mid-1937 and lengthening when yields declined.

Notes:

(1.) “Recasting the National Debt: A Knotty Problem in Finance,” New York Times, April 2, 1933, p. XX5.

(2.) “Professors Join Treasury Forces,” Wall Street Journal, July 11, 1933, p. 1. See also, “Roosevelt Studies Long-Term Issue,” New York Times, July 27, 1933, p. 25 (reporting that “For some time the Treasury has been anxious to consolidate a portion of its short-term certificates into bonds ….”).

(3.) “Treasury Makes Popular Offer,” Wall Street Journal, July 31, 1933, p. 1.

(4.) “Treasury Makes Popular Offer,” Wall Street Journal, July 31, 1933, p. 1.

(5.) “New Federal Loan Sells at a Premium,” New York Times, August 1, 1933, p. 23.

(6.) The gold purchase program is discussed in the appendix to chapter 16.

(7.) “Treasury Charts Pulse of Market,” New York Times, January 26, 1934, p. 2.

(8.) In calling some, but not all, of the Fourth Liberties, the Treasury had to identify which bonds were being called. This was done by choosing at random the last digit of the serial number of the called bonds. See “Move Surprises Capital,” New York Times, October 12, 1933, p. 1 (“The formal call of the Fourth Liberty bonds took place with an elaborate ceremony, conducted by [Under Secretary of the Treasury Dean Acheson] in the outer offices of Secretary Woodin. High Treasury and Federal Reserve Board officials looked on as Mr. Acheson drew from a glass jar an envelope containing the numbers of the three series to be called. These were the series whose serial numbers of ten digits end on 9, 0 and 1 ….”) and “$1,870,000,000 More in Liberties Called,” New York Times, October 13, 1934, p. 23 (“The bonds included in today’s call were those bearing the serial numbers ending in the digits 5, 6, or 7. Secretary Morgenthau, in the presence of a few of his associates, drew from a glass the slips containing the numbers.”).

(9.) Treasury Circular no. 502, October 12, 1933, reprinted in 1933 Treasury Annual Report, p. 180.

(10.) “Choice of Bonds Offered by U.S.,” Wall Street Journal, September 10, 1934, p. 1 (“The Treasury attitude apparently is one of extreme skepticism concerning the issuance of long-term bonds at this time.”). See also “Treasury Offers to Refund Issues of $1,774,748,500,” New York Times, September 10, 1934, p. 1 (characterizing the bond market as “soft”).

(11.) Treasury Circular no. 523, September 10, 1934, reprinted in 1935 Treasury Annual Report, p. 182, and Treasury Circular no. 524, September 10, 1934, reprinted in 1935 Treasury Annual Report, p. 184.

(12.) Treasury Circulars no. 598, 599, and 600, December 5, 1938, reprinted in 1939 Treasury Annual Report, pp. 233, 235, and 236, respectively.

(13.) “Treasury’s December Financing Plans Bring Rise in Bonds,” Wall Street Journal, December 3, 1938, p. 1.

(14.) Tilford Gaines (1962, p. 79) later pointed out that multiple-option exchange offers left “the maturity distribution of the debt … in the hands of … investors.”

(15.) Garbade (2004a, 2007).

(16.) Treasury Circular no. 541, May 27, 1935, reprinted in 1935 Treasury Annual Report, p. 223.

(17.) Tenders were received at Federal Reserve Banks and branches (but not at the Treasury Department in Washington, D.C.) up to 3:00 p.m., Eastern Standard time, on Wednesday, May 29. Auction results were announced on Thursday, May 30. The Treasury rejected bids for $22 million of bonds at a price of 103 rather than ration those bidding at that price to only 5.5 percent of what they bid for ($1.2 million = 5.5 percent of 22 million). “New Bond Bids Treble Offering; Treasury Accepts $98,779,000,” New York Times, May 31, 1935, p. 25.

(18.) “Treasury Offering of New 3% Bonds Oversubscribed,” Wall Street Journal, May 31, 1935, p. 1.

(19.) “New Bond Bids Treble Offering; Treasury Accepts $98,779,000,” New York Times, May 31, 1935, p. 25.

(20.) “Treasury to Sell $100,000,000 Bonds to Highest Bidders,” Wall Street Journal, May 27, 1935, p.1, and “Treasury Proposes $770,000,000 Refunding,” Wall Street Journal, May 28, 1935, p. 3. See also “A Treasury Experiment,” New York Times, May 29, 1935, p. 20 (characterizing the first bond auction as an “experiment, intended to test the popularity of such an issue. …”).

(21.) The third auction reopened a bond that was first sold in an exchange offering for the third called Fourth Liberties in March 1935 and that was reopened in May 1935 in an exchange offering for the First Liberties. At the time of the third auction, that bond was the largest ($2.3 billion) and (other than the Panama Canal bond maturing in 1961) longest Treasury bond in the market.

(22.) “New Federal Issue Subscribed 5 Times,” New York Times, July 19, 1935, p. 25.

(23.) See chapter 3.

(24.) See, for example, “Treasury Offers $100,000,000 Issue in Financing Test,” New York Times, May 27, 1935, p. 1 (reporting that, under the fixed-price subscription method, “it has been necessary for the Treasury so to gauge the market’s appetite as to assure the success of an offering, with the result that the interest rate usually has been slightly above the market.”).

(25.) “Treasury Proposes $770,000,000 Refunding,” Wall Street Journal, May 28, 1935, p. 3.

(26.) “Treasury to Sell $100,000,000 Issue,” New York Times, June 24, 1935, p. 25. See also, Joint Economic Committee (July 1959, p. 1157) (Treasury staff report stating that, in 1935, proponents of the auction process believed that auctions would allow the Treasury to obtain funds “at a minimum interest cost”).

(27.) “Treasury Plans Large Refinancing,” New York Times, May 28, 1935, p. 39.

(28.) “Steady Financing is Treasury’s Aim,” New York Times, July 12, 1935, p. 27, and “Treasury to Depend More on Auctions for Bond Financing,” Wall Street Journal, July 12, 1935, p. 1. See also, “Treasury Offers $100,000,000 Issue,” New York Times, July 15, 1935, p. 25 (“It is the understanding that in the future the Treasury may at such intervals as additions to the cash balance by borrowings are deemed necessary, vary its programs by relatively small offerings of bonds or shorter term issues as the market conditions dictate.”).

(29.) “Federal Bonds Dip in Active Treading,” New York Times, August 9, 1935, p. 26, and “Bond Sales on the New York Stock Exchange,” New York Times, August 9, 1935, p. 26.

(30.) “Federal Bonds Dip in Active Trading,” New York Times, August 9, 1935, p. 26, and “Virtually All Bonds Decline: Governments Off on Larger Volume,” Wall Street Journal, August 9, 1935, p. 6.

(31.) “Bids Show Decline on Federal Bonds,” New York Times, August 16, 1935, p. 23, and “Treasury Takes $98,465,000 Bid of $100,000,000 Bond Offering,” Wall Street Journal, August 16, 1935, p. 2.

(32.) Joint Economic Committee (July 1959, p. 1158).

(33.) Treasury Circular no. 549, August 26, 1935, reprinted in Federal Reserve Bank of New York Circular no. 1579, August 26, 1935.

(34.) “Treasury Offers $100,000,000 Bonds,” New York Times, August 26, 1935, p. 23.

(35.) “The Under-Subscribed Loan,” New York Times, September 1, 1935, p. E8.

(36.) “Federal Bond Sale Fell Short of Goal,” New York Times, August 30, 1935, p. 1.

(37.) “Federal Bond Sale Fell Short of Goal,” New York Times, August 30, 1935, p. 1.

(38.) “Treasury Offers $1,750,000,000 Bonds and Notes,” Wall Street Journal, September 3, 1935, p. 1.

(39.) See, “Dip in U.S. Bonds Raises Question of Money Trend,” New York Times, August 30, 1935, p. 1 (reporting that Morgenthau felt the auction method “had worked very well so far as the Treasury was concerned, and it would not be abandoned”), and “Treasury Closes Books on Sale of Notes for Cash,” Wall Street Journal, September 4, 1935, p. 1 (stating that “the Treasury made it clear that it had no intention of giving up the auction method”).

(40.) “Treasury Announces $50,000,000 Bill Issue,” New York Times, October 25, 1935, p. 31 (reporting that “the Treasury intends to drop, for the time being at least, the auction system of selling bonds”).

(41.) Joint Economic Committee (July 1959, p. 1157). Even before the first auction, the Wall Street Journal reported that “In asking the market directly to set the issue price on the securities, [Treasury] officials expect banks to be the largest buyers of the bonds.” “Treasury to Sell $100,000,000 Bonds to Highest Bidders,” Wall Street Journal, May 27, 1935, p. 1. This was a clear indication that officials recognized that auction participation was going to be far narrower than participation in subscription offerings.

(42.) W. Randolph Burgess, “Notes on the Mechanism of the Market for Treasury Bills,” typescript dated July 16, 1937, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7 (“The principal initial market for Treasury bills is found in the large New York City banks and the government security dealers. Banks in other principal centers have been bidders from time to time, as have also business corporations and foreign banks of issue, but over a period more than 85 per cent of the bills have been originally issued in New York, and of this amount a large proportion has been tendered for by the principal banks and dealers.”).

(43.) Joint Economic Committee (July 1959, p. 1157).

(44.) Garbade (May 2004, 2007).

(45.) “Treasury Expands Bonus Borrowing,” New York Times, April 28, 1936, p. 1.

(46.) Meltzer (2003, pp. 490–534) discusses the increase in reserve requirements.

(47.) See, for example, “U.S. Debt Spread Over Longer Term,” New York Times, September 21, 1936, p. 31 (Morgenthau announcement that the average maturity of Treasury debt had increased from seven years and four months in March 1933 to nine years and eight months in August 1936), and “Treasury Refundings of $14,000,000,000 Due Next Five Years,” Wall Street Journal, September 21, 1936, p. 1.

(48.) In the March 1936 tax date financing, Treasury officials also made an exchange offering of the 5-year note and the 15-year bond to holders of $559 million of a maturing note. Note holders took $48 million of the 5-year note, $496 million of the 15-year bond, and redeemed the remaining $15 million of the maturing note. Officials contemplated giving holders of the maturing bills a similar option to exchange their bills, but decided in the end to do a cash redemption and a cash refinancing of the bills. “Treasury States New Issues ’ Terms,” New York Times, March 2, 1936, p. 1 (“The large amount of cash sought was due only to the fact that the [Treasury] department decided against a policy of permitting holders of the maturing block of Treasury bills to exchange them ….”).

(49.) “Treasury Expands Bonus Borrowing,” New York Times, April 28, 1936, p. 1.

(50.) In the March 1937 tax date financing the Treasury offered only to exchange a 16¾-year bond for a maturing note and did not offer any securities for cash. Spreading out the bill maturities over days when tax payments were actually received eliminated the need for the Treasury to borrow from the Federal Reserve on a day-to-day basis to fund the redemption of maturing debt and facilitated compliance with Section 206 of the Banking Act of August 23, 1935, which provided, for the first time, that the Federal Reserve could not buy Treasury securities directly from the Treasury.

(51.) See, for example, “Wall Street Studies Treasury Moves,” New York Times, September 12, 1937, p. F1 (commenting on “the steady inflow of funds from the Social Security taxes”), and “Treasury to Sell Additional Bills,” New York Times, February 4, 1938, p. 27 (noting that “The amount of the national debt in the hands of the public is expected to decline gradually …, principally because of the investment of social security tax money in government obligations ….”). See also, “U.S. Not to Borrow More ‘New Money,’” New York Times, March 1, 1938, p. 29, and “Wall Street Ponders March Financing,” New York Times, February 19, 1939, p. 55 (commenting on the contribution of savings bonds to keeping down sales of marketable securities).

(52.) $75 million of new money was raised with bills issued on March 6 (cycle week 10), $100 million with bills issued March 22 (cycle week 12), $100 million with bills issued April 5 (cycle week 1), and $60 million with bills issued May 3 (cycle week 5).

(53.) Simmons (1947, p. 335) remarks that “The episode of long-dated Treasury bills has never been adequately explained in official statements. It may represent nothing more than experimentation on the part of the Treasury.”

(54.) Memo dated June 14, 1937, from W. Randolph Burgess, vice president, Federal Reserve Bank of New York, to George Harrison, president, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7 (stating that “a nine months ’ bill is too long”), and memo dated June 18, 1937, from Burgess to Harrison, Allan Sproul, first vice president, Federal Reserve Bank of New York, and Walter Matteson, assistant vice president, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7 (stating that “the nine months bill is not a proper market instrument but both ninety day bills and six months bills conform reasonably to market usage and requirements”). See also, Miller (1938, p. 91) and Larkin (1951, p. 3, fn. 2).

(55.) Memo dated June 18, 1937, from W. Randolph Burgess, vice president, Federal Reserve Bank of New York, to George Harrison, president, Federal Reserve Bank of New York, Allan Sproul, first vice president, Federal Reserve Bank of New York, and Edward Matteson, assistant vice president, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7. See also, W. Randolph Burgess, “Notes on the Mechanism of the Market for Treasury Bills,” typescript dated July 16, 1937, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7 (noting that “the nine months bills particularly have not found as ready a market after their issuance, as have the shorter bills.”).

(56.) “Treasury Studies Means of Tapping Idle Bank Funds,” Wall Street Journal, September 14, 1937, p. 1.

(57.) W. Randolph Burgess, “Notes on the Mechanism of the Market for Treasury Bills,” typescript dated July 16, 1937, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7.

(58.) E.A. Goldenweiser, Director of the Division of Research and Statistics at the Board of Governors of the Federal Reserve System, observed that “country banks generally adjust their reserve positions by drawing on their balances with city correspondents, and the ultimate adjustment has to be made by city banks. It is for this reason that city banks hold relatively large volumes of short-term liquid assets, such as bankers ’ acceptances, call loans, and Treasury bills.” E. A. Gold-enweiser, “Buying Rates for Treasury Bills,” mimeograph dated July 17, 1937, Federal Reserve Bank of New York file 413.7A.

(59.) The similarity with the concentration of bidders in bond auctions in 1935 at the large banks and dealer firms—see Joint Economic Committee (July 1959, p. 1157)—is striking.

(60.) “Treasury Studies Means of Tapping Idle Bank Funds,” Wall Street Journal, September 14, 1937, p. 1.

(61.) “Treasury Studies Means of Tapping Idle Bank Funds,” Wall Street Journal, September 14, 1937, p. 1. The Treasury had stopped issuing certificates of indebtedness in early 1934. The Treasury later cited four reasons for its decision to abandon certificates and to rely strictly on bills, including (1) the lower cost of issuing bills through competitive bidding, (2) the convenience of not having to set fractional interest rates in a market where yields were on the order of basis points rather than percentage points, (3) the liquidity of the bill market in major financial centers that allowed the Treasury to bring new issues when cash was needed, and (4) the convenience of setting maturities on tax bills to dates when tax payments would be received. 1940 Treasury Annual Report, pp. 58–59.

(62.) “Treasury Sentiment Crystallizes Against Shift in Financing Methods,” Wall Street Journal, October 6, 1937, p. 1, and “Morgenthau May Explain Policy Today; He Talks to Reserve’s Open Market Body,” New York Times, October 7, 1937, p. 41 (“Recently Mr. Morgenthau indicated that one of the questions to be discussed with the [Federal Reserve’s] Open Market Committee was the advisability of replacing the present 273-day discount bill issues by another security with a fixed interest rate and a longer maturity. At that time the rate at which the Treasury was marketing the discount bills had stiffened and there were predictions in some financial circles that it might rise as high as 1 per cent. Since then, however, … the Treasury has sold [them] at less than one-half of 1 per cent. The belief here, therefore, is fairly general that the suggestion of substituting another type of security for the bills will be dropped ….”). In early November the Investment Bankers Association, a trade association of broker-dealer firms, argued that bills had become increasingly important to market participants during 1937 and urged that bill issuance be continued. “Treasuries Firm as Market Waits Quarter Financing,” Wall Street Journal, November 15, 1937, p. 6. See also, chapter 9 (“Commercial Banks and Treasury Bills”) in Miller (1938).

(63.) “Treasury Loans to be Refunding,” New York Times, December 3, 1937, p. 35, and “Morgenthau Announcement,” Wall Street Journal, December 3, 1937, p. 8.

(64.) The reduced issuance size was consistent with a recommendation of W. Randolph Burgess that the Treasury bill market should be “kept small enough so the Treasury is not too dependent on this narrow market.” Memo dated June 5, 1937, “Ways and Means of Facilitating a Better Distribution of Treasury Bills throughout the Country,” from W. Randolph Burgess, vice president, Federal Reserve Bank of New York, to George Harrison, president, Federal Reserve Bank of New York, Federal Reserve Bank of New York file 413.7.