Institute Comment Letter on Inflation-Protection Securities

Washington, DC, July 8, 1996 - The Treasury Department has requested comments on the design details, terms and conditions, and other features of a proposed new type of Treasury security: "inflation-protection" securities. The Institute recently submitted a comment letter to the Treasury Department.

The Institute's letter supports the Treasury Department's initiative and agrees with the Treasury that inflation-protection securities could provide savings on interest costs to the United States government and broaden the types of debt instruments available to investors in the financial markets. The letter indicates that, if structured correctly, inflation-protection securities should prove to be attractive both to individual and institutional investors and in the pension and retirement markets.

The Institute's specific comments concern how the Treasury Department might best ensure that inflation-protection securities gain the broadest acceptance with the investing public. The Institute recommends that the securities be issued with a broad range of maturities, including short-term (1 to 5 years), intermediate-term (5 to 10 years) and long-term (more than 10 years) maturities. Although the Institute does not express an opinion on the "preferred" structure for the securities, the letter recommends that the securities be structured to meet the expectations of investors, including investment companies. Accordingly, the letter recommends that, in structuring the securities, the Treasury Department consider certain issues that are of particular concern to investment companies, including issues related to the securities' volatility and cash flow and their tax and accounting treatment. Finally, the letter recommends that, as part of the proposal, the Treasury Department develop a schedule in which to seek periodically public comment from market participants on the issuance and structure of inflation-protection securities.