The U.S. Treasury is the dominant issuer of debt instrumentsin the financial markets. It sells both marketable and nonmarketabledebt, the former representing the larger share of its issuance. It sells bills that mature within a year, notes thatmature in two to ten years, and bonds with maturities out toabout thirty years. The Treasury’s regular issuance ofsecurities is an important part of its program for managing theU.S. public debt, which stood at $5.3 trillion at the end of1996. Of this amount, just over $3.4 trillion was in the hands ofthe public, while almost $0.4 trillion was held by the FederalReserve and about $1.5 trillion was held in Treasury trustaccounts. Treasury debt issues are purchased by a wide rangeof investors who are attracted by the securities’ perceived freedomfrom credit risk, ready marketability, exemption fromstate and local taxes, and wide range of maturities. Banks,thrift institutions, foreign central banks, other financial andnonfinancial businesses in the United States and abroad, andindividuals buy marketable Treasury securities. As of December1996, the Treasury estimated that of the Treasury debt heldby the public, 10 percent was held by banks and mutualfunds, 10 percent by individuals, 14 percent by privatenonfinancial businesses (including insurance companies),33 percent by foreigners, 10 percent by state and local governments,and 21 percent by other miscellaneous investors.The Treasury has sold bills at competitive auctions sincebills were introduced in 1929. Beginning in the early 1970s,auctions became the predominant sales technique for notesand bonds as well. Nonmarketable debt is sold to specificpurchasers under prearranged terms.9 The Treasury auctionsbills most frequently, offering three- and six-month bills eachMonday for settlement that Thursday when existing billsmature. It sells fifty-two-week bills (referred to as year bills)every fourth week, also with Thursday maturities and settlements.In time, they become interchangeable with three- andsix-month issues with the same maturity date. The Treasuryalso sells cash management bills of varying maturities tobridge cash low points, often ahead of major tax dates.Bills are discount instruments for which the purchaserpays an amount below the face, or par, value. The Treasuryrepays the face value at maturity. The interest earned, referredto as the rate of discount, is computed approximately as theamount below the face value divided by the fraction of theyear that the bill is outstanding.