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Strategic Treasury Debt Management in Public Policy

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  • Campbell R. Harvey

Abstract

The Treasury should supplement its bond offerings with adjustable‐rate coupon bonds. The adjustable coupon would be linked to the six‐month Treasury bill auction yield. Given the different magnitude of adjustable and fixed mortgage rates, the interest servicing costs would be dramatically lower for the floating‐coupon bonds. This idea is already a proven winner in the corporate bond market where close to 30 percent of new Eurobond offerings in the last 10 years have been adjustable‐rate bonds. In addition to reducing servicing costs, the strategy will relieve some of the burden on the long‐maturity fixed‐coupon bonds. Reducing the supply of the fixed‐coupon bonds should increase prices and decrease long‐term yields. Reduction in long‐term interest rates enhances spending, construction and capital expenditures. Most importantly, these bonds help enforce a low inflation policy.

Suggested Citation

  • Campbell R. Harvey, 1993. "Strategic Treasury Debt Management in Public Policy," Review of Policy Research, Policy Studies Organization, vol. 12(3‐4), pages 76-89, September.
    • Handle: RePEc:bla:revpol:v:12:y:1993:i:3-4:p:76-89
    DOI: 10.1111/j.1541-1338.1993.tb00552.x
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