TERM INVESTMENT OP
FACT SHEET
Ø In April 2002, the Fiscal Service introduced, on a pilot basis, a new investment option for Treasury Tax and Loan depositaries to test the viability of placing balances for a defined term through a competitive auction process. The new investment tool is called the Term Investment Option, or TIO.
Ø The pilot program was designed to meet two cash management needs: add investment capacity to the TT&L program and increase the interest rate that Treasury earns on invested funds.
Ø In order to participate in the TIO pilot, financial institutions must be designated as a TT&L depositary, under the terms of 31 CFR Part 203.
Ø Pilot participants were solicited from existing TT&L depositaries. Twenty-six TT&L depositaries volunteered to participate in the pilot. The participants included large money center banks and mid-size financial institutions.
Ø The TIO auctions are conducted as single price auctions. All successful bidders are awarded funds at the lowest acceptable bid rate.
Ø Twenty-seven TIO investment operations have been conducted since April of 2002. A total of $94 billion has been placed. An additional $4 billion will be placed today, October 27th.
Ø The results of the TIO operations from April 2002 through January 2003 were used to evaluate whether the pilot program met the stated objectives. The following summarizes the findings and recommendations:
- TIO auctions become a permanent Treasury investment alternative
- Improvements to the TIO program infrastructure be made,
- Periodically review the TT&L investment program to identify changes or improvements, and
- Improve transparency by providing more bidder information including bid-to-cover information to participants and markets.
Ø Our future plans include focusing on:
- Broadening participation in the program in order to increase the competitiveness of the auction process and to expand our ability to invest excess operating funds
- Automating the processing which occurs between investment and maturity date in order to support an increased number of participants, and
- Exploring other investment alternatives when appropriate.
OTHER FACTS
Ø Net interest earnings since the inception of the program stand at $4.98 million. This total includes estimated net interest earnings on the TIO invested on October 20 and on October 27.
Ø The average offering amount has been $3.7 billion with an offering range of $2 billion to $10 billion. The average term to maturity has been 11.1 days with the term to maturity ranging between 3 to 18 days.
Ø Auctions have generally been well bid with an average bid-to-cover ratio of 3.16.