siamond wrote: Sat Jan 02, 2021 11:13 am
Alpha4 wrote: Sat Jan 02, 2021 4:36 amBut if you look at the NBER document I mentioned in my post you see that if anything, the opposite was the case...[...]
There should've been plenty of PTE bonds for use in constructing a
long-term yield series (remember, the law at the time mandated that long-term securities were only to be PTE and not fully tax-exempt); if there was an issue I would presume it would be with the shorter to mid-term maturities (i.e. the range between, say, 180 day Bills and eight or nine year Bonds) as from 1929 to the 1936 or so the Federal Government issued plenty of Treasury securities in the 2-7 year range that were tax free (i.e. totally tax-exempt) [...]
Understood about the sheer volume of such securities (as described by the NBER document), but we need a decent mix of maturities to get something meaningful and I find hard to believe Coleman, Ibbotson and al. didn't have a really good reason to skip the 1933-1941 time period...
Why don't you sample a little bit, say taking 1935 as a year to study and see what data you can unearth?
Alright, after seeing what was available in PTE bonds for the 1933 to roughly the 1935 or early 1936 period I perhaps see why Coleman/Fisher/Ibbotson would've decided to go with a fully tax-exempt series rather than try to find PTE security yield information for the shorter end of the range (T-bills up to maybe 5 year Notes/Bonds).
Such a series could not be completely constructed with pure Treasury securities at all; the shortest term remaining (until maturity or callability) PTE Treasury security with a definite guaranteed and known fully in advance call or maturity date (the Second Conversion Liberty Loan, Third Conversion Liberty Loan, and Fourth Liberty Loans were PTE bonds issued to finance WWI and by the early-mid 1930s appear somewhat unique as regards whether or not they would be called and when; more on them below) would be the Treasury Bond issued in July 1928 with a 3.375% rate at issue and with a first callability date in June 1940; this would on 1-1-1935 be a roughly five and a half year bond. After that there are PTE Treasury bonds that have first call or maturity in March 1941, August 1941, June 1943, October 1943, April 1944, December 1944, March 1946, June 1946, October 1947, December 1949, and the longest term remaining one that was first callable in September 1951 (which would make it a roughly sixteen year and nine month bond....there were no twenty or thirty years remaining PTE bonds at this point; the non-callable Panama Canal funding bonds issued by the US Treasury in 1911 and due in 1961 were fully tax exempt). The above bonds were issued over the period from 1922 to late 1934 so by 1-1-1935 would've been openly traded and available in the secondary market.
Now on to the Liberty Loans. The First Liberty Loan was fully tax-exempt and so is irrelevant for purposes of the discussion here. The two PTE Conversion Liberty Loans were actually theoretically callable by the Treasury any time after June 15th, 1932. Given that these bonds paid interest (at 4.00% and 4.25% respectively) at what were somewhat above market rates (from mid-1932 through '33 and '34) at the time on equivalent bonds it would've made sense for the Treasury to call them in as soon as they had the right to do so. However, apparently from mid-1932 to most of 1933, whether due to either the Depression, the nation's financial system being more or less one step away from a financial crisis and freeze-up, or the Treasury being afraid of being unable to raise enough money at reasonable rates (by selling new Treasuries in order to get cash to pay off the Conversion Liberty Loans as soon as they were callable) to pay off the Conversion Liberty Loan bondholders (Treasury was forbidden by law during this period from directly issuing any debt--of any term or maturity--paying more than 4.25%; Treasury officials were apparently worried that in order to raise enough cash to pay off the several billion $ in Conversion Liberty Loans all at once on the first call date they might have to offer a rate higher than 4.25% in order for the market to be willing to clear and absorb all the new debt; they were of course forbidden to do this and perhaps that's why they didn't call them in the minute they were callable), these were so far as I can tell not called in until June of 1935 (the February 28th, 1935 "Statement of the Public Debt of the United States" just says these two Liberty Loans were "callable after June 15, 1932; the March 31st, 1935 version of this document--which was likely published the first few days of April 1935--indicates that these bonds were to be called for redemption as of June 15th, 1935; by the June 1935 version of the document these bonds aren't even listed so presumably Treasury did call them in by then as planned). So we are left with the question of on 1-1-1935 did these bonds trade as regular bonds (since they weren't due to actually mature until June 1947) or were they unofficially more or less considered "under the gun" to be called even before Treasury officially announced in the spring of 1935 its intention to call them by mid-June 1935 and they as such traded as very short-term almost T-Bill like debt?
The Fourth Liberty Loan was also PTE and was technically callable any time on or after October 15, 1933. However, Treasury apparently saw the same issues with immediately calling this bond as it saw with the two Conversion Liberty Loans and so it wasn't called as soon as it became callable either. Rather than just waiting until it was confident in being able to raise enough funds at reasonable rates to call this issue all at once the Treasury started calling them in by lots depending on what their serial numbers ended in! The June 1934 Statement of the Public Debt of the United States notes that these bonds (the Fourth Liberty Loan) with final digits 1, 9, and 0 were called for redemption on Apr 15, 1934, and bonds with final digits 2 and 8 were to be called for redemption Oct 15, 1934; the October 1934 version of this document notes that bonds with final digits of 5, 6, and 7 were to be called in for redemption on April 15, 1935. The May 1935 version of this document has the earliest mention of the remaining bonds being called in; it notes that the bonds with serial numbers with final digits 3 and 4 were to be called in as of October 15, 1935.
Despite the above it seems the case that Treasury made its intentions clear before mid-1934 or mid-1935 that it was calling these bonds in (and that it gave the date said call was to happen); they apparently would let it be known at least six or seven months before the call date that they were calling the bonds in; if you go to
https://www.jta.org/1933/10/16/archive/ ... e-maturity you will see that in mid-October 1933 the US Treasury gave public notice that it was calling in the Fourth Liberty Loan bonds with serial numbers ending in 1, 9, or 0 (while additionally noting that any of these bonds bearing serial numbers other than those designated--i.e. other than 1 , 9, or 0--were not included in or affected by this call for partial redemption). Also; apparently the second lot of bonds called (the ones with serial numbers ending in 2 and 8 that were called in on October 15, 1934) was pre-announced as well; pg 170 of the document at
https://play.google.com/store/books/det ... AAJ&rdot=1 states that the notice that Treasury was calling in the bonds with serial numbers ending in 2 or 8 was made on April 13, 1934; Treasury's notice that the third lot of these bonds (with serial numbers ending in 5, 6, or 7) was to be called in as of April 15, 1935 came on October 13, 1934; see the Indianapolis Times, Volume 46, Number 133, Indianapolis, Indiana, 13 October 1934 edition. The final call for redemption (for the bonds with serial numbers ending in 3 or 4) came on April 13, 1935; see
https://fraser.stlouisfed.org/title/fed ... rity-16221 . This means in early January 1935 that the third lot theoretically would've traded as being basically PTE T-bills (with a remaining time until call of just over 3.5 months); whether or not people would've suspected/guessed/presumed in January 1935 that the Treasury was planning to call in the remaining bonds (the fourth lot) I cannot say as I do not know; if they did this would mean that these bonds would've traded as roughly six to nine month bills depending on whether people thought they might've been called in during the summer or called in during the fall. I'll have to check on bond quotes (from the WSJ, C&FC, and B&QR) and see what prices these bonds exhibited as they traded.
if we do have two T-Bill equivalents as above as of early 1935 that just leaves us with trying to fill in the space roughly between 180 or 270 days at the shortest maturity and roughly five or five and a half days at the longest maturity (since we have actual Treasury Bonds for maturities from that point all the way up to just under seventeen years until maturity). As I noted earlier in this post, Treasury issued plenty of Notes during this time; as of January 1935 there are maturities ranging from due in the spring of 1935 to due in June 1939...but all of these are fully tax-exempt rather than PTE.
If we want to use fully 100% explicitly US Treasury guaranteed Agency debt (RFC and HOLC mostly) yields from this period as a sub for the non-existent PTE treasury yields for the 1-4 year term we
might have enough data for bonds that as of January 1935 matured in 1-4 years to use in creating a semblance of yield curve (as of 1-1-1935 there were RFC Notes maturing on Dec 15th 1935, June 10th 1936, and July 1st 1937; there were HOLC Notes maturing on August 15th of 1936, Aug 15th of 1937, and Aug 15th of 1938.....and as of June 1st 1935 there was also issued a HOLC Note maturing in June of 1939). All of these RFC and HOLC agency securities were non-callable. I will have to do further research to find out what kind of secondary market existed for these bonds and what yields they traded at (or indeed if they traded much at all).
