Post on 16-Dec-2015
Overview of U.S. Treasury Debt Management
Karthik RamanathanDirector
Office of Debt Management
June 2008
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Contents
I. Overview and Objectives
II. Composition of Portfolio
III. Determinants of Borrowing Needs and Policy Tools
IV. International Investments
V. Overview of TIPS Program
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I. Overview and Objectives
Size of Operations is Hard to Grasp
$4.4 trillion issued in 219 auctions in FY 2007
$238 billion paid in net interest in FY 2007
• represented 8.7% of Government expenditures
More than $1 trillion moved between accounts on NBES daily
More than $565 billion traded daily (primary dealers)
• For comparison total global equity trading is under $420 billion daily
$4.6 trillion in marketable debt outstanding as of May 31, 2008
• represents roughly a quarter of U.S. credit markets
* includes holdings by the Federal Reserve
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Treasury Issuance Objectives and Constraints
Our Objective • Lowest cost of financing over time
Constraints• Uncertainty: Forecast errors, legislation, etc. all create uncertainty in deficit
forecasts, debt limit problems• Size: Treasury is too large to behave opportunistically• Fluctuations in non-marketable debt: Savings Bonds, State and Local
Government Securities• Short-term balances: Adequate cash balances to cover expenses
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Flexibility is Key as a Result of Large Swings in the Deficit
Annual Deficits as of FY 2008
-500,000
-400,000
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Years
$ M
illio
ns
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
Per
cen
t o
f G
DP
OMB Estimates
Surplus/Deficits$ millions (LHS)
Surplus/Deficits as a Percentage of GDP (RHS)
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Lowest Cost over Time Implies a Diversified Debt Portfolio
Spread debt across maturities to…
• Reduce risk• Diversify the investor base• Improve cash management• Facilitate regular and predictable issuance
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Promote market transparencyProvide a structured framework for investor participationBe available to customers for feedback and guidanceListen and be credible
Ensure regulationBroadly speaking, to protect investorsEstablish consistent, fair practices across marketsCreate a level playing fieldInstill investor confidence in markets
But don’t over regulate Don’t interfere with price discoveryLet bond market participants develop trading practicesLet market participants work through problems—don’t overreact.Encourage solutions and innovation through market based, private working
groups
Deep, Liquid Markets Promote Capital Flows
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Treasury Issuance Outcomes
Policy Outcomes• We are regular market participants, not market timers -- “Regular and
predictable”• We don’t react to interest rate levels• We need flexibility• We strive for transparency
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Transparency and PredictabilityLeads to Greater Investor Participation over the Long Run
Source: FRB-NY
Average Daily Trading Volume of U.S. Treasury Securities (annual)
0
100
200
300
400
500
600
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
*
$ B
illio
ns
Average 2007 Daily Trading Volume = $565 Billion
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II. Composition of Portfolio
Marketable Debt• $4.6 trillion outstanding, can be traded in the secondary market• Sold at auction, rates set via competitive bidding
Non-Marketable Debt• $515 billion outstanding • Can only be sold to Treasury• Sold by subscription, rates set administratively • Savings bonds, State and Local Government Series (SLGS)
Government Account Series• Approximately $4.2 trillion (mostly special non-marketables) in 135 funds
Federal Old Age Survivors Fund $2.1 trillion
Civil Service Retirement Fund $679 billion
Hospital Insurance Trust Fund $323 billion
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Non-Marketable Treasury Securities
State and Local Government Series (SLGS)• $280 billion outstanding• Special securities issued to municipalities to assist them with compliance on arbitrage-
rebate regulations
U.S. Savings Bonds• $195 billion outstanding• Both Series E and Series I (inflation protected)• Targeted at small retail investors
Foreign Government Series and Other (ex Govt Acct)• $40 billion, (e.g., Brady bond zeros)
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$4.6 trillion outstanding
Bills, $1,114,547, 24%
Notes, $2,475,730, 53%
Bonds, $580,983, 12%
TIPS, $494,202, 11%
Composition of Marketable Debt
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$4.7 trillion outstanding
Foreign Series, $3,286, 0%
R.E.A Series, $1, 0%
SLGS Series, $280,017, 6%
Savings Bonds, $195,225, 4%
Government Account Series, $4,190,825, 89%
Other, $4,265, 0%
Domestic Series, $29,995, 1%
Composition of Non-Marketable Debt
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Composition of Total Debt Outstanding
$9.4 trillion outstanding
Bills, 1,119,245 , 12%
Notes, 2,476,584 , 26%
Bonds, 581,059 , 6%
TIPS, 494,295 , 5%
FFB, 14,000 , 0%
Domestic Series, 29,995 , 0%
Foreign Series, 3,286 , 0%
R.E.A Series, 1 , 0%
SLGS Series, 280,017 , 3%
Savings Bonds, 195,225 , 2%
Government Account Series, 4,190,825 , 46%
Other, 4,265 , 0%
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Interest Costs on Marketable Debt
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III. Determinants of Borrowing Needs and Policy Tools
Changes in Cash Balance
Budget Deficit/Surplus
Economic Outlook
Volume of Maturing Issues (rollover of existing issues)
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…And, Volatility in Cash Balances
Key Receipt Dates
1st of Month – Individual withheld taxes
Mar. 15, Jun. 15, Sept. 15, Dec. 15- Corporate Taxes
Jan. 15, Apr. 15, Jun. 15, Sept. 15 Individual Non-withheld Taxes
Key Outlay Dates
1st of each month – Medicare, SSI, VA, CSRDF
3rd of each month Main Social Security payments
2nd/3rd/4th Wed of each month Soc. Sec. cycle payments
Feb. 15, May 15, Aug. 15, Nov. 15 Interest payment dates—
Feb 1 - April 15 – Individual tax refunds
Treasury Daily Operating Cash Balance
0
25
50
75
100
125
150
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
$ billions
0
25
50
75
100
125
150
FY 2006
FY 2007
FY 2008
$ billions
Note: Data through June 4, 2008.
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Estimating Financing Needs
Each morning, the Office of Fiscal Projections (OFP) updates its forecasts for government financing using the latest available data
Revenues Outlays(Deficit)/Surplus
Corporate Taxes
Individual Taxes
Excise Taxes
Estate and Gift Taxes
Customs Duties
Defense Spending
Education Expenses
Social Security
Medicare/Medicaid
Federal employee payroll
ETC…
=
FY2008 $2.52 trillion FY2008 ($2.93 trillion) FY2008 ($410 billion)+ =Based on OMB’s Budget of the United States Government FY2009
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Average Absolute Federal Budget Forecast ErrorsFY 1997-2006
Months Until End of Fiscal Year Average Error14 Months $124 billion11 Months $100 billion8 Months $93 billion5 Months $62 billion2 Months $25 billion
*Average Error for FY 1997 – 2006 based on forecasts by CBO, OMB, and Primary Dealers
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Debt Management Policy Tools
Auction Sizes Auction Frequency Security Offering Menu Auction Regulations Market monitoring, consultation, and surveillance
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IV. International Investments
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Foreign Holdings as a Percent of Total Marketable Debt
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V. Overview of TIPS Program
First TIPS were issued in January 1997. Treasury now is the largest issuer of inflation linked bonds globally.
26 issues ranging from 2009 to 2032. The TIPS curve is complete out to 10 years.
To date only three TIPS issues have matured – in July 2002, January 2007, and January 2008.
As of May 31, 2008 TIPS market capitalization totaled over $494 billion; or about 11% of marketable Treasuries outstanding.
Average daily trading volume in 2008 is near $10 billion according to primary dealer estimates .
There is a higher concentration of dealer volume relative to nominal Treasuries. TIPS ownership is also more concentrated.
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Additional Information
Office of Debt Management• http://www.treas.gov/offices/domestic-finance/debt-management/
Federal Reserve Information• http://www.newyorkfed.org/• http://www.federalreserve.gov/