Read the following case study. Write a 1-2 page analysis describing the strengths and weaknesses of the Treasury Proposal. Provide several scenarios of the Treasury proposal in different environments of the Yield Curve. Submit your paper in Word to this Discussion Area by Sunday, February 3, 2013. Review and comment on the papers of at least 2 of your classmates before the end of the week. Treasury funds the national debt through a mix of T-bills, T-notes, and T-bonds with maturities of 10-30 years.
During President Clinton’s administration the Treasury proposed that by issuing more T-bills and less T-Notes and Bonds they could reduce the federal budget deficit substantially. For example, the yield on T-bills was around 3% and the yield on 30 year Treasury bonds was 7.25%. The Treasury believed there would be substantial savings in interest payments through this policy. Discuss the strengths and weaknesses of the proposal. (Make sure to explain the assumptions implicit in the proposal).
