Does Treasury Know How To Make A Buck?

A little more than a year ago, the Treasury Dept. decided to take advantage of low interest rates by shifting the mix of federal borrowing toward shorter maturities. How has the grand experiment worked?

Not bad. It has indeed saved some money. By shifting about $50 billion a year from longer to shorter maturities with lower rates, the Administration saved about $900 million last year and should save an additional $1.7 billion this fiscal year--about 20% more than it originally predicted. And according to researchers R.H. Wrightson & Associates, the strategy should keep yielding an additional $1 billion to $2 billion in annual savings through the rest of the decade.

But Wrightson's chief economist, Louis Crandall, believes the government missed an opportunity to lock in more long-term debt at last year's low rates (6.8% for 30-year bonds then, vs. 7.6% now). "They picked the absolute worst time to make the switch," he says. And if a new round of inflation causes a sharp spike in short-term rates, Treasury's move could backfire. Treasury officials say they haven't yet done the calculations to gauge the effect of the changes in the government's maturity mix.

FEDERAL DEBT TILTS TO SHORT-TERM
      DOLLAR GROWTH IN TREASURIES,
      BY MATURITY, Mar .'93 to Mar. '94
                          OLD      NEW
                          MIX*     MIX
      UNDER
      1 YR.               3%        7%
      OVER
      10 YRS.             5%        4%
      *How debt would have grown under previous
      maturity distribution
      DATA: R.H. WRIGHTSON & ASSOCIATES INC.
      

Paul Magnusson and Dean Foust

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