Adventures in Financial Engraving

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TCH1

Adventures in Financial Engraving

"A National Blessing."2

Visualizing Evolving (or Mutating) Maturities in U.S. Treasuries

MARLA SINGER AND ALBRECHT DRER

JANUARY 2009

Abstract

We compiled 120 months of data from the United States Department of the Treasury's

"Monthly Statement of the Public Debt" reports to catalogue monthly snapshots of everyclass of marketable security issued by the Treasury with amounts outstanding. Our data

encompassed all marketable bonds, notes, bills, Federal Financing Bank ("FFB") debtand Treasury Inflation Protected Securities (TIPS) outstanding during the period from

End-of-Month January 2000 to End-of-Month December 2009. For each security issuedwe collected data for debt class, security series, stated interest rate, issue date, maturity

date, issued principal, amount outstanding and so forth. Individual securities were thenclassified for each monthly snapshot by days until maturity, and coupon or initial interest

rate. We then calculated the aggregate amounts outstanding for each calendar quarter

increment in maturity and 50 basis point increment in interest rate for each monthly

snapshot. The resulting 120x32x120 array was plotted on three dimensional bar graphs in

120 monthly intervals of 32x120 matrices and then animated. What emerges is a unique

picture of the evolving nature of Treasury debt, its extensive and recent growth and a

clear picture of the substantial roll-over risk created by dramatically shortened average

maturities and large, recent borrowings. Further, it becomes apparent that the current

maturity profile is such that even extensive inflation will likely be ineffective in

mitigating the impact of the debt analyzed.

1. Motivationgrand treasury debt

expanse- threatens imminent

blu-ray home viewing

1 TCH (http://www.zerohedge.com/etch) renders (or deconstructs) topics of economic or financial relevance through the creation andexposition of unique data visualizations. TCH aims to communicate the specificity of the economic and the financial to a wider audience, tocompel a reexamination of the rational and, critically, to critique the irrational sacrifice of the rational in the name the political. TCH issponsored (sort of) by zerohedge.com.

2 "A national debt, if it is not excessive, will be to us a national blessing." Alexander Hamilton, Letter to Robert Morris, 30 April, 1781, in JohnC. Hamilton (ed.) Works of Alexander Hamilton vol. I (1850).


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2. SubjectAs an obstacle to fiscal and budgetary reform in the United States, fiscal obscurity is both

the most daunting and the most practically difficult to surmount. Despite the potential for

ruinous and personal consequences to the public, the significant fiscal challenges faced

by the United States rank as a subject matter class somewhere between Octomom'shometown3 and Robert Pattinson's birthday4 on the scale of public awareness. Further,

anyone wishing to paint the dark curtain of fiscal ignorance with a momentary spotlight

must first command the notoriously fleeting attention of the American public to matters

economic. To adopt the use of modifiers such as "impossible" or "hopeless" in

connection with this task may be disingenuous-- but only just. Accordingly, we ignore

momentarily (and fatally) issues of financial illiteracy for the purposes of this analysis.

Historically, even efforts at "shock therapy" (for instance denominating the deficit in

units of annual Bill Gates salaries or displaying the reader's personal share of the debt)

suffer from a growing large number immune response, lately developed by the public in

response to nearly constant media delivery of the words "billion" and, increasingly,"trillion."5

While the ramifications of quantitative easing or Treasury collateral reverse repo

operations may escape even learned financial professionals, unique visual presentation

(or may we go so far as to say "art"?) often has the potential to crystallize complex issues

in the public psyche. We attempt this dangerous feat in this paper and media connected

thereto.

Figure 1: The Topography of Treasury Debt (November 2009)

3 Fullerton, California4 May 13, 19865 It is clear that no figure other than Carl Sagan can possible be to blame for catalyzing the order of magnitude escalation that today

predominates public discourse on all matters financial.


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3. DataWe downloaded all existing "Monthly Statement of the Public Debt" reports from the Treasury

Direct website dating back to July of 1953. For the present project we focused our attention on

data from January 2000 to November 2009. Variations between formats and what can only be

termed "curious peculiarities" in the use of data formatting by officials at the Department of theTreasury required significant manual formatting modification to render the material machine

readable. Given the widespread and diverse nature of errors or formatting choice by Treasury

officials, development of automated parsing methods (macros, perl, etc.) was judged likely to

consume significant resources. Several encounters with "rogue data" prompted brief suspicions

that the many issues with the original data were knowingly introduced. 6 Several gaps in excel

data (for instance, exact figures for maturing bills in a given month) meant that monthly sums

reported by the Treasury often did not match line item figures. In these cases we drew maturity

data from multiple sources and completed calculations by hand using the Treasury's monthly

sums as a "checksum." We consolidated the resulting monthly reports into annual excel sheets

which were then addressable as ODBC Data Source Name (DSN) entities. Total nonmarketable

debt as of end-of-month December 2009 was on the order of $5.0 trillion. Total marketable debt(including Bills, Notes, Bonds, Treasury Inflation Protected Securities ("TIPS") and Federal

Financing Bank ("FFB") obligations) was $7.3 trillion in the same period. Our attentions for this

project were focused on this latter figure.

FFB maturities are reported by the Treasury only as "various." As these figures are generally de

minimis7we assigned all FFB obligations the weighted maturity disclosed in the most recent

financial statements of the FFB.8

Our resulting dataset, the culmination of over 200 hours of compilation and validation, permits

extensive analysis and manipulation of the consequences of more than five decades of deficit

spending and will serve as a platform for a number of Treasury TCHings in the months to come.

6 Seasoned financial professionals, even those in government service, would, for instance, normally be expected to convert interest rate fractionsfrom "1/2" to ".5".

7 Federal Financing Bank obligations are listed as $11,921 million versus $7,174,573 million (0.17%) in total marketable debt. (MonthlyStatement of the Public Debt, November 2009).

8 Federal Financing Bank annual report for the fiscal year ended September 30, 2009. (http://www.ustreas.gov/ffb/financial-statements/fy2009_01.pdf)


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4. Analysis (Art)Though any discussion offered in print must, of necessity, pale in comparison to the

visualizations we have developed in the course of this analysis, we would be remiss not to offer a

few brief (and perhaps superfluous) observations:

The massive increase in borrowing conducted over the last several months is quitewithout precedent

Marketable debt is highly concentrated in instruments with less than three and less thansix months of maturity

Weighted average maturity for marketable debt at end of month December 2009 was4.958 years (Cf. 5.87 years for the end of month January 2000). A shift towards a 7-8

year weighted average maturity (as per the Treasury's present goals) would require rather

daunting issuances in the longer maturities

As of end of month December 2009, amount of marketable debt maturing in:o 0-30 days: $432.0 billiono 31-60 days: $382.3 billiono 61-90 days: $307.0 billiono Total maturing in under 90 days: $1,121.3 billion

Using inflation to reduce debt impacts in an environment characterized by shortmaturities is difficult if not impossible. (Rising interest rates ensnare each roll-over and

raise the debt service required of the Treasury)

5. SynthesisReaders are invited to review "Gone in 24 Seconds," ten years of debt topography evolutionscompressed into 24 seconds via:

http://www.zerohedge.com/etch/v1i1

Watching short term debt columns march from ~1% to ~6% in the 30 months between mid 2004

and late 2006 should send cold chills down the spine of those Treasury officials not presently

asleep.

6. Future ProjectsThe availability of an extensive, granular, robust and accurate history of Treasury debt invites agreat deal of future visual exploitation. Our future exploitative endeavors are likely to include:

Detailed roll-risk analysis visualizations Short maturity evolution analysis Modeling and visualization of probably issuances by the Treasury Introduction of historical pricing data Duration analysis


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Debt v. party control analysis

Adventures in Financial Engraving

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