August 4, 1999
Web posted at: 7:35 a.m. EDT (1135 GMT)

From staff and wire reports

WASHINGTON (CNN) -- In a move projected eventually to save billions of dollars in interest on the national debt, the Clinton administration will begin laying plans to buy back government bonds.

The Treasury Department is set to announce Wednesday its plans to set rules that will govern how the government would conduct such a buyback, known as a "reverse auction" in the securities business.

Later, at a White House event, President Clinton will embrace the proposal as the latest step in his plan to reduce the government's lingering national debt. Clinton will also make a fresh assault on Republican plans for a nearly $800 billion tax cut, officials say.

Under the bonds proposal, the Treasury Department would be allowed to buy back government securities before they mature. The government could pay for this effort either with cash reserves or by issuing new securities at today's lower interest rates.

The government has a total debt of $5.5 trillion, about $3.2 trillion of which is held in the form of publicly traded U.S. Treasury bills, notes and bonds.

But since the original bonds were issued at times when interest rates were far higher than current levels, there is a vibrant private sector market for trading in these bonds. The Treasury might have to pay a premium to get bondholders to part with the higher-interest securities.

Government analysts and Wall Street firms that have studied the program agree that it offers an opening for the government to ultimately lower Treasury's overall borrowing costs.

Administration officials said the rulemaking process would take several months and that it was unlikely the government would begin the new program until next year.

Debt buybacks are rare among major industrialized countries. The United States exchanged short- for longer-term debts in the 1960s, seeking to extend the terms of the public debt.

CNN White House Correspondent John King andReuters contributed to this report.

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