WASHINGTON — The Treasury Department announced Thursday that it is resuming the sale of state and local government series securities at 1 p.m., EDT, after the longest suspension in 17 years.
The Treasury's Bureau of Public Debt suspended sales of SLGS securities on May 17, as one of several extraordinary measures it took to avoid hitting the $16.7 trillion federal debt limit.
But on Thursday, President Obama signed legislation - H. R. 2775, Continuing Appropriations Act, 2014 -- which suspends the debt limit through Feb. 7, 2014 and allows the Bureau of Public Debt to accept subscriptions for new issues of SLGS securities.
SLGS securities are purchased by muni issuers that are subject to arbitrage rebate or yield restriction requirements of the tax code and want to avoid violating them. Most typically issuers purchase SLGS securities, rather than open-market Treasuries, for advance refunding escrows to ensure their investment yield will not significantly exceed the yield of their refunding bonds and that they will not violate yield restriction requirements.
SLGS securities can be specially tailored so that their maturities match the maturities of any municipal securities being refunded.
They are sold at rates that are one basis point below the current estimated borrowing rates for Treasuries with comparable maturities.
During the past year, state and local governments invested almost $11 billion per month on average in SLGS securities, according to a paper issued earlier this month by The Pew Charitable Trusts.
In May when SLGS securities sales were halted, more than $166 billion of them were outstanding, according to Pew.
SLGS securities are sold at rates that are one basis point below the current estimated borrowing rates for Treasuries with comparable maturities.
During the past 20 years, Treasury has suspended sales of SLGS securities nine times, counting the most recent suspension.
SLGS securities count against the debt limit. Suspending sales stops further increases in the debt that would be counted against the limit if SLGS securities continued to be issued. In other words, suspending sales does not provide new headroom under the limit, it only conserves any remaining headroom available.