The Treasury's Big Chance To Nudge Long Rates Down

Even a little help is welcome in the effort to lower long-term interest rates. That's why a number of economists, including some of President-elect Clinton's advisers, have argued that the Treasury should reduce its issuance of long-term debt in favor of shorter-term securities. If successful, such a strategy could not only cut the government's borrowing costs but also bolster long-term capital investment.

Although many market observers believe that such efforts to manipulate the yield curve are bound to fail over the long run, it's noteworthy that the Trea-

sury did take a small (and apparently successful) step in this direction last year. In May it made a modest, onetime downward adjustment in the sizes of its 10-year and 30-year offerings. And economist Marc W. Wanshel of Morgan Guaranty Trust Co. thinks there's a strong chance that the agency will soon try again.

Wanshel points out that the Treasury's need for funds should be unusually low in the first and second quarters. That's because its coffers will benefit from higher tax payments by individuals who shifted income into 1992 and from the dampening effect of last year's lower withholding rates on income-tax refunds. "The prospect of unusually light borrowing needs," he says, "will provide Clinton Administration officials with a good opportunity to announce a second round of 'onetime' reductions in long-term mfferings with minimum risk of roiling the markets."

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