Treasury Presentation to TB
Office of Debt Manageme

Fiscal Year 2020 Q2 Report
Table of Contents

I. Executive Summary p. 4II. Fiscal

A. Quarterly Tax Receipts p. 6B. Monthly Receipt Levels p. 7C. Largest Outlays p. 8D. Treasury Net Nonmarketable Borrowing p. 9E. Cumulative Budget Deficits p. 10F. Deficit and Borrowing Estimates p. 11G. Budget Surplus/Deficit p. 12H. Privately-Held Net Marketable Borrowing Outlook p. 13

III. Financing

A. Sources of Financing p. 16B. OMB’s Projections of Net Borrowing from the Public p. 18C. Interest Rate Assumptions p. 19D. Projected Net Marketable Borrowing Assuming Future Issuance Remains Constant p. 20

IV. Portfolio Metrics

A. Historical Weighted Average Maturity of Marketable Debt Outstanding p. 22B. Bills, TIPS & FRNs Outstanding as a Percent of Marketable Debt Outstanding p. 23C. Maturity Profile p. 24

V. Demand

A. Summary Statistics p. 27B. Bid-to-Cover Ratios p. 28C. Investor Class Awards at Auction p. 33D. Primary Dealer Awards at Auction p. 37E. Direct Bidder Awards at Auction p. 38F. Foreign Awards at Auction p. 39G. Foreign Holdings: Official and Private p. 40
Section I:

Executive Summary
Receipts and Outlays through Q2 FY2020

• Total receipts were $1,604 billion, which is $96 billion (6%) higher compared to the same period last year. Rec

GDP, compared to 14.2% of GDP for the same period last year. 

• Total outlays were $2,347 billion, which is $149 billion (7%) higher than the comparable period last year. Out

compared to 20.7% of GDP for the same period last year.

Projected Net Marketable Borrowing (FY2020) 

• Treasury’s Office of Fiscal Projections (OFP) currently forecasts a net privately-held marketable borrowing n

Q3 FY2020, with an end-of-June cash balance of $800 billion. For Q4 FY2020, OFP forecasts a net privately-heneed of $677 billion assuming end-of-September cash balance of $800 billion. Privately-held marketable borro

(auction “add-ons”) of Treasury securities held in the Federal Reserve’s System Open Market Account (SOM

required due to SOMA redemptions. Secondary market purchases of Treasury securities by SOMA do not di

privately-held marketable borrowing but, all else equal, when the securities mature and assuming the Fed do

maturing securities would increase the amount of cash raised for a given privately-held auction size by incre

on” amount.

Demand for Treasury Securities

• Bid-to-cover ratios for all securities were largely stable over the last quarter. • High demand for Treasury bills with about $1.4 trillion of net issuance since 3/31/2020. • Foreign demand increased modestly.

Highlights of Treasury’s May 2020 Quarterly Refunding Pre

to the Treasury Borrowing Advisory Committee (TBA
Section II:

Fiscal
Source: United States Department of the Treasury

(40%)(30%)(20%)(10%)

0%

10%20%30%40%50%60%

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec18

Year-over-Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl FIC
Individual Income Taxes include withheld and non-withheld. Social Insurance Taxes include FICA, SECA, RRTA, UTF dep

RUIA. Other includes excise taxes, estate and gift taxes, customs duties and miscellaneous receipts. Source: United States Department of the Treasury 

0

20406080

100120140160

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

Individual Income Taxes Corporate Income Taxes Social Insurance Taxes 
Source: United States Department of the Treasury 

0

100200300400500600700

HHS

SSA

Treasury

Defense

VA

Agriculture

OPM

Education

Transportation

Other Defense Civil

Homeland Security

$ bn

Largest Outlays

Oct - Mar FY 2019 Oct - Mar FY 2020
Source: United States Department of the Treasury

(40)(30)(20)(10)

0

102030

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

Q3-14

Q4-14

Q1-15

Q2-15

Q3-15

Q4-15

Q1-16

Q2-16

Q3-16

Q4-16

Q1-17

Q2-17

Q3-17

Q4-17

Q1-18

Q2-18

Q3-18

Q4-18

Q1-19

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

Foreign Series State and Local Govt. Series (SLGS) Savings Bonds
Source: United States Department of the Treasury

0

200400600800

1,0001,200

October

November

December

January

February

March

April

May

June

July

A

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2018 FY2019 FY2020
Primary Dealers1 OF

FY2020 Deficit Estimate 3,659 FY2021 Deficit Estimate 2,002 FY2022 Deficit Estimate 1,350FY2020 Deficit Estimate Range 2,600-4,425FY2021 Deficit Estimate Range 1,400-2,994FY2022 Deficit Estimate Range 1,100-2,200FY2020 Privately-Held Net Marketable Borrowing Estimate 3,700 4,4FY2021 Privately-Held Net Marketable Borrowing Estimate 2,100FY2022 Privately-Held Net Marketable Borrowing Estimate 1,313FY2020 Privately-Held Net Marketable Borrowing Range 2,550-4,850FY2021 Privately-Held Net Marketable Borrowing Range 1,300-3,000FY2022 Privately-Held Net Marketable Borrowing Range 720-2,300Estimates as of: Apr-20 May

2Treasury's Office of Fiscal Projections (OFP) borrowing estimates announced on May 4, 2020.

FY 2020-2022 Deficits and Privately-Held Net Marketable Borrowing Estimates*, in $ 

*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the FedOpen Market Account (SOMA) but includes financing required due to SOMA redemptions. Secondary market purchsecurities by SOMA do not directly change net privately-held marketable borrowing but, all else equal, when the seassuming the Fed does not redeem any maturing securities, would increase the amount of cash raised for a given prsize by increasing the SOMA “add-on” amount.3CBO FY2020 and FY2021 deficit estimates are from CBO’s blog “CBO’s Current Projections of Output, Employmen

and a Preliminary Look at Federal Deficits for 2020 and 2021,” April 24, 2020 @ https://www.cbo.gov/publication/

1Estimates represent the medians from the primary dealer survey in April 2020. The FY2020 net borrowing estimates 

an assumption of end-of-September 2020 cash balance of $800 billion. 
Projections are from OMB’s Table S-10 of “A Budget for America’s Future, Fiscal Year 2021,” February 2020.

*OMB projections reflect pre-CARES Act forecasts and will be updated when new projections become availab

OMB’s Projection

(1,400)(1,200)(1,000)

(800)(600)(400)(200)

0

200

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

$ bn

Fiscal Year

Budget Surplus/Deficit*

Surplus/Deficit (LHS) Surplus/Deficit (RHS)
$0

$500

$1,000$1,500$2,000$2,500$3,000$3,500

Q1 Q2 Q3 Q4

$ bn

FY17 FY18 FY19 FY20 FY 20 (projection-OFP)

* Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the System Open Market Account (SOMA) but includes financing required due to SOMA redemptions. Secondary Treasury securities by SOMA do not directly change net privately-held marketable borrowing but, all else equamature and assuming the Fed does not redeem any maturing securities, would increase the amount of cash raiprivately-held auction size by increasing the SOMA “add-on” amount.

Privately-Held Net Marketable Borrowing Outlook*
Section III:

Financing
Assumptions for Financing Section (pages 16 to 21)

• Portfolio and SOMA holdings as of 03/31/2020.• Estimates assume private announced issuance sizes and patterns remain constant for nomin

TIPS, and FRNs given changes made before the May 2020 refunding, while using total bills of ~$2.66 trillion. 

• The principal on the TIPS securities was accreted to each projection date based on market Z

as of 03/31/2020. 

• No attempt was made to account for future financing needs. 
*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserv

Market Account (SOMA) but includes financing required due to SOMA redemptions. Secondary market purchases of TreasurSOMA do not directly change net privately-held marketable borrowing but, all else equal, when the securities mature and assnot redeem any maturing securities, would increase the amount of cash raised for a given privately-held auction size by incre“add-on” amount.^An end-of-March 2020 cash balance of $515 billion versus a beginning-of-January 2020 cash balance of $404 billion. By keepi

constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance 241 Security Gross Maturing Net Gross 

Net Coupon Issuance 236 4-Week 600 539 61 1,260 

Subtotal: Net Marketable Borrowing 477 8-Week 545 477 68 1,080 

13-Week 567 567 0 1,140 

Ending Cash Balance 515 26-Week 489 496 (7) 1,008 

Beginning Cash Balance 404 52-Week 104 96 8 186 

Subtotal: Change in Cash Balance 111 CMBs 150 40 110 165 

Bill Subtotal 2,455 2,214 241 4,839 

Net Implied Funding for FY20 Q2** 366

Security Gross Maturing Net Gross 

2-Year FRN 56 45 11 112 

2-Year 120 83 37 240 3-Year 114 72 42 228 5-Year 123 105 18 246 7-Year 96 60 36 192 

10-Year 75 44 31 150 30-Year 51 3 48 102 

5-Year TIPS 0 0 0 32 

10-Year TIPS 26 21 5 38 30-Year TIPS 8 0 8 8 

Coupon Subtotal 669 433 236 1,348 

Total 3,124 2,647 477 6,187 

January - March 2020 Fi

Coupon Issuance C

Sources of Privately-Held Financing in FY20 Q2*^

January - March 2020 January - March 2020 Fi

Bill Issuance 
Assuming Constant Coupon Issuance Sizes**

Treasury Announced Net Marketable Borrowing*** 2999

Net Coupon Issuance 249

Implied Change in Bills 2750

Security Gross Maturing^ Net Gross Matur

2-Year FRN 62 49 13 174 135 

2-Year 126 96 30 366 230 3-Year 120 71 49 348 215 5-Year 129 103 26 375 338 7-Year 105 61 44 297 179 

10-Year 78 31 47 228 111 30-Year 54 2 52 156 5 

5-Year TIPS 32 55 (23) 64 55 

10-Year TIPS 12 0 12 50 21 30-Year TIPS 0 0 0 8 0 

Coupon Subtotal 718 469 249 2,066 1,29

Coupon Issuance Coupon Is

Sources of Privately-Held Financing in FY20 Q3*

April - June 2020

April - June 2020 Fiscal Year

* Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve’s System O

but includes financing required due to SOMA redemptions. Secondary market purchases of Treasury securities by SOMA do not directly chmarketable borrowing but, all else equal, when the securities mature and assuming the Fed does not redeem any maturing securities, would raised for a given privately-held auction size by increasing the SOMA “add-on” amount.** Keeping announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs based on changes made before the May 2

*** Assumes an end-of-June 2020 cash balance of $800 billion versus a beginning-of-April 2020 cash balance of $515 billion.Financing Estimates released by the Treasury can be found here: http://www.treasury.gov/resource-center/data-chart-center/quarterly-re

^ Maturing amounts could change based on future Federal Reserve purchases.
1,080

1,031

979

798

595

564

513

465

501

27

(600)(400)(200)

0

200400600800

1,0001,200

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 

$ bn

OMB's Projection of Borrowing from the Public*

Primary Deficit (LHS) Net Interest (LHS)Other (LHS) Debt Held by Public (RHS)Debt Held by Public Net of Financial Assets (RHS)

OMB's projections of the change in debt held by the public (borrowing) are from Table S-10 of “A Budget for America’s 2021,” February 2020. “Other” represents borrowing from the public to provide direct and guaranteed loans.*OMB projections reflect pre-CARES Act forecasts and will be updated when new projections become available. 

The bubbles represent the total net marketable borrowing for that year

$ bn %

Primary Deficit 1,099 16

Net Interest 5,598 79

Other 393 6

Total 7,090 100

FY2020 - FY2030 Cumulative Total
0.4

0.91.41.92.42.93.4

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

10-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note*

CBO's "The Budget and Economic Outlook: 2020 to 2030" (January 2020)OMB FY 2021 Budget (Feb 2020)Implied Forward Rates as of 03/31/2020

10-Year Treasury Rate of 0.67% as of 03/31/2020

OMB's economic assumption of the 10-Year Treasury note rates reflect the calendar year average from Table S-9 of OM

America’s Future, Fiscal Year 2021,” February 2020. CBO’s economic assumption 10-Year Treasury note rates reflect the Table B-2 of CBO’s “The Budget and Economic Outlook: 2020 to 2030,” January 2020. The forward rates are the implied 

rates on March 31, 2020. *Both OMB and CBO projections reflect pre-CARES Act forecasts and will be updated when new projections becom
0

500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 

$bn

Fiscal Year

Fed Purchases from 4/1/20 to 5/1/20 Increase in Bills Outstanding between 4/1/20 and 5/5/20Projected Privately-Held Net Marketable Borrowing OMB's FY2021 Budget, February 2020PD Survey Cash Balance Adjusted Privately-Held Net Marketable Borrowing Estimates, April 2020 OFP's FY2020 Net Marketable Borrowing Estimate, May 2020CBO's "The Budget and Economic Outlook: 2020 to 2030" January 2020 (current law) for FY2021 to FY2030 COVID-19 outbreak adjusted CBO deficit estimates for FY2020 and F

Projected Privately-Held Net Marketable Borrowing 

Assuming Private Coupon Issuance & Total Bills Outstanding Remain Constant as 

Treasury’s latest primary dealer survey median estimates can be found on page 11, FY2020 median estimate is normalized with an ass

September 2020 cash balance of $800 billion. OMB's projections of the change in debt held by the public are from Table S-10 of “A Bud

Fiscal Year 2021,” February 2020. CBO’s current law budget projections of the change in debt held by the public for FY2022 to FY2030 Budget and Economic Outlook: 2020 to 2030,“ January 2020. * Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve’s Syst

(SOMA) but includes financing required due to SOMA redemptions. No adjustments are made for open-market outright purchases. For FY2020 and FY2021, COVID-19 outbreak adjusted CBO projections are deficit estimates, which can be found in CBO’s blog “CBO’Output, Employment, and Interest Rates and a Preliminary Look at Federal Deficits for 2020 and 2021,” April 24, 2020 @ https://www.c

Both OMB and CBO projections before April 2020 reflect pre-CARES Act forecasts and will be updated when new projections bec
Section IV:

Portfolio Metrics
404550556065707580

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

2007

2008

2009

2010

2011

2012

2013

2014

2015

Weighted Average Maturity (Months)

Calendar Year

Historical Weighted Average Maturity of Marketabl

Debt Outstanding

Historical Historical Average from 1980 to end of FY 2020 Q2

69.2 03/3

60.1 months (Historical Average from 1980 to Present)
05

10152025303540

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

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Percent

Calendar Year

Bills, TIPS & FRNs Outstanding as a Percent of 

Marketable Debt Outstanding

Bills TIPS FRNs

Bills Historical Average = 22.7%

Max 10.7%

Max 

Max 35.6%
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

2007

2008

2009

2010

2011

2012

2013

2014

0

500

1,0001,5002,0002,5003,000

$ bn

Private Bills Holdings as a Percentage of Total Private Holdings

Private Bills Holdings Private Bills Holdings as a Percentage of Total Private Holdings (RHS
20304050607080

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

2007

2008

2009

2010

2011

2012

2013

2014

Percent

Calendar Year

Treasury Maturity Profile History

Percent Maturing <=1 Year Percent Maturing <= 3 Years

5
Section V:

Demand
*Weighted averages of Competitive Awards. FRNs are reported on discount margin basis. **Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS 10-yconstant auction BEI is used as the inflation assumption.

Security 

Type Term Stop Out Rate (%)* Bid-to- Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) SOMA "Add- Ons" ($bn

Bill 4-Week 1.105 3.1 572.9 49.9 4.6 45.5 27.1 25.1 Bill 8-Week 1.135 3.0 535.0 50.2 4.7 45.0 10.0 22.5 Bill 13-Week 1.079 2.8 557.7 48.2 6.6 45.2 18.3 18.7 Bill 26-Week 1.068 2.9 479.0 52.6 5.5 41.9 16.0 16.1 Bill 52-Week 1.007 3.2 76.4 58.8 2.8 38.3 1.6 2.1 Bill CMB 0.472 2.9 254.9 46.7 2.9 50.5 0.1 0.0 

Coupon 2-Year 1.008 2.5 119.3 37.0 12.9 50.2 0.7 15.6 Coupon 3-Year 1.174 2.4 113.8 39.3 12.8 47.9 0.2 18.2 Coupon 5-Year 1.044 2.4 122.9 30.0 12.1 57.9 0.1 15.9 Coupon 7-Year 1.166 2.5 96.0 25.7 13.1 61.1 0.0 12.4 Coupon 10-Year 1.454 2.5 75.0 27.3 13.4 59.3 0.0 12.8 Coupon 30-Year 1.916 2.4 51.0 19.9 15.6 64.5 0.0 9.0 

TIPS 10-Year 0.333 2.3 25.9 17.4 14.0 68.6 0.1 3.1 TIPS 30-Year 0.261 2.4 8.0 14.8 11.5 73.7 0.0 0.0 

FRN 2-Year 0.177 2.9 56.0 51.5 1.5 46.9 0.0 2.1 

Total Bills 1.030 3.0 2,475.9 50.1 5.0 44.9 73.1 84.6 

Total Coupons 1.213 2.5 577.9 31.3 13.1 55.6 1.1 83.9 

Total TIPS 0.316 2.3 33.9 16.8 13.4 69.8 0.1 3.1 

Total FRN 0.177 2.9 56.0 51.5 1.5 46.9 0.0 2.1 

Summary Statistics for Fiscal Year 2020 Q2 Auctions
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Bid-to-Cover Ratio

Bid-to-Cover Ratios for Treasury Bills

4-Week (13-week moving average) 8-Week (13-week moving average) 13-Week (13-week movin26-Week (13-week moving average) 52-Week (6-month moving average)
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

Aug-18

Oct-18

Dec-18

Feb-19

Apr-19

Jun-19

Aug-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs

(6-Month Moving Average)
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for 2-, 3-, and 5-Year Nominal Securiti

(6-Month Moving Average)

2-Year 3-Year 5-Year
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for 7-, 10-, and 30-Year Nominal Securitie

(6-Month Moving Average)

7-Year 10-Year 30-Year
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Jan-14

May-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct18

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) Long-end (20- & 30-year)
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include DepoInstitutions, Individuals, Pension and Insurance.

0%5%

10%15%20%25%30%35%40%

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Sep-19

13-week moving average

Percent Awarded in Bill Auctions by Investor Class 

(13-Week Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include DInstitutions, Individuals, Pension and Insurance.

0%

10%20%30%40%50%60%

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Sep-19

6-month moving average

Percent Awarded in 2-, 3-, and 5-Year Nominal Security 

Auctions by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include DepInstitutions, Individuals, Pension and Insurance.

0%

10%20%30%40%50%60%70%

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Sep-19

6-month moving average

Percent Awarded in 7-, 10-, 30-Year Nominal Security Auctio

by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International O
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include DeposInstitutions, Individuals, Pension and Insurance.

0%

10%20%30%40%50%60%70%80%90%

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

6-month moving average

Percent Awarded in TIPS Auctions by Investor Class

(6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Competitive Amount Awarded excludes SOMA add-ons. 

10%20%30%40%50%60%70%

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction

4/8/13/26-Week (13-week moving average) 52-Week (6-month moving average2/3/5-Year (6-month moving average) 7/10/30-Year (6-month moving avTIPS (6-month moving average)
Competitive Amount Awarded excludes SOMA add-ons. 

0%5%

10%15%20%25%

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

% of Total Competitive Amount Awarded

Direct Bidder Awards at Auction

4/8/13/26-Week (13-week moving average) 52-Week (6-month moving average)2/3/5-Year(6-month moving average) 7/10/30-Year (6-month moving average)TIPS (6-month moving-average)
Foreign includes both private sector and official institutions.

0

102030405060708090

100

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2/3/5 7/10/30 TIPS FRN
Source: Treasury International Capital (TIC) System.For more information on foreign participation data, including more details about the TIC data shown here, please refer Presentation to TBAC “Brief Overview of Key Data Sources on Foreign Participation in the U.S. Treasury Securities Ma

Treasury February 2019 Refunding.

Total Foreign Holdings

0

500

1,0001,5002,0002,5003,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20

$ bn

Bills

Outstanding Foreign Holdings Foreign % (RHS)

02/29/20 

02/29/2

02/29/2

0

3,0006,0009,000

12,00015,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2

$ bn

Nominal Coupons, TIPS, and FRNs

Outstanding Foreign Holdings Foreign % (RHS)

02/

02/29/

02/29/20 14,
Appendix
Projected Privately-Held Net Marketable Borrowing 

Assuming Private Coupon Issuance & Total Bills Outstanding 

Remain Constant as of 3/31/2020*

Projections reflect only SOMA rollovers at auction of principal payments of Treasury securities. No adjustmenfor open-market outright purchases and subsequent rollovers.Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Reserve’s System Open Market Account (SOMA) but includes financing required due to SOMA redemptions. 

Fiscal 

Year Bills 2/3/5 7/10/30 TIPS FRN

Historical/Projected 

Net Borrowing 

Capacity

2015 (53) (282) 642 88 164 558 2016 289 (107) 515 58 41 795 2017 155 (66) 378 51 (0) 519 

2018 438 197 493 45 23 1,196 2019 137 498 534 51 59 1,280 2020 280 384 489 45 37 1,236 2021 0 402 358 33 2 795 2022 0 157 418 26 2 602 2023 0 218 277 22 0 516 2024 0 131 279 34 0 444 2025 0 7 307 (24) 0 291 2026 0 0 295 (5) 0 290 2027 0 0 265 (3) 0 262 2028 0 0 234 (22) 0 212 2029 0 0 216 (26) 0 190 2030 0 0 203 1 0 204 
*Weighted averages of competitive awards. **Approximated using prices at settlement and includes both competitive and non-competitive awards.

Issue Settle Date Stop Out Rate (%)* Bid-to- Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) S

4-Week 1/7/2020 1.500 3.31 33.0 36.1 2.1 61.8 2.0 4-Week 1/14/2020 1.490 3.38 32.7 37.5 2.8 59.8 2.3 4-Week 1/21/2020 1.505 3.21 33.1 43.3 2.4 54.3 1.9 4-Week 1/28/2020 1.500 3.10 37.9 37.7 2.0 60.3 2.1 4-Week 2/4/2020 1.545 2.69 42.9 63.0 5.6 31.4 2.1 4-Week 2/11/2020 1.540 3.04 48.3 44.2 1.8 54.0 1.7 4-Week 2/18/2020 1.560 2.75 48.1 55.3 2.9 41.7 1.9 4-Week 2/25/2020 1.575 2.69 47.9 54.4 2.9 42.7 2.1 4-Week 3/3/2020 1.530 2.59 47.4 63.6 7.2 29.2 2.6 4-Week 3/10/2020 0.925 2.66 47.4 63.8 6.2 30.0 2.6 4-Week 3/17/2020 0.395 2.51 48.6 54.0 4.6 41.3 1.4 4-Week 3/24/2020 0.030 2.91 47.7 41.8 11.9 46.4 2.3 4-Week 3/31/2020 0.000 4.74 57.8 44.3 4.5 51.3 2.2 8-Week 1/7/2020 1.515 3.15 33.8 47.8 2.4 49.8 1.2 8-Week 1/14/2020 1.515 2.99 34.1 61.8 3.2 35.0 0.9 8-Week 1/21/2020 1.530 3.20 34.4 49.0 3.4 47.6 0.6 8-Week 1/28/2020 1.540 2.82 39.5 56.1 4.7 39.1 0.5 8-Week 2/4/2020 1.550 3.01 43.7 49.3 2.8 47.8 1.3 8-Week 2/11/2020 1.550 3.06 44.5 54.4 4.1 41.5 0.5 8-Week 2/18/2020 1.565 2.93 44.5 51.4 3.4 45.2 0.5 8-Week 2/25/2020 1.570 2.77 44.5 47.6 2.8 49.6 0.5 8-Week 3/3/2020 1.500 2.71 43.7 58.0 5.3 36.8 1.3 8-Week 3/10/2020 0.820 2.73 44.8 58.2 4.0 37.8 0.2 8-Week 3/17/2020 0.290 2.97 39.8 34.4 2.3 63.3 0.2 8-Week 3/24/2020 0.030 2.99 39.0 38.5 16.6 44.9 1.0 8-Week 3/31/2020 0.000 3.77 48.8 46.4 6.2 47.3 1.2 

Bills
*Weighted averages of competitive awards.**Approximated using prices at settlement and includes both competitive and non-competitive awards.

Issue Settle Date Stop Out Rate (%)* Bid-to- Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) 

"A

13-Week 1/9/2020 1.520 2.94 40.4 48.0 4.4 47.6 1.6 13-Week 1/16/2020 1.530 2.87 40.6 51.9 4.9 43.2 1.4 13-Week 1/23/2020 1.530 3.00 40.8 46.6 11.8 41.7 1.2 13-Week 1/30/2020 1.530 2.66 43.0 58.0 6.1 35.9 2.0 13-Week 2/6/2020 1.550 2.57 43.7 57.8 5.8 36.4 1.3 13-Week 2/13/2020 1.550 3.01 43.5 52.8 3.9 43.3 1.5 13-Week 2/20/2020 1.545 2.91 43.6 51.9 4.5 43.6 1.4 13-Week 2/27/2020 1.505 2.88 43.0 47.2 4.7 48.1 2.0 13-Week 3/5/2020 1.155 3.02 44.0 35.1 6.2 58.6 1.0 13-Week 3/12/2020 0.390 2.74 41.2 42.1 14.5 43.4 0.8 13-Week 3/19/2020 0.290 2.58 40.4 51.0 3.2 45.8 1.6 13-Week 3/26/2020 0.000 3.11 44.0 20.7 12.9 66.4 1.0 13-Week 4/2/2020 0.085 2.52 49.5 61.9 4.1 34.1 1.5 26-Week 1/9/2020 1.520 3.09 34.6 42.3 4.4 53.2 1.4 26-Week 1/16/2020 1.530 2.98 34.6 52.9 5.6 41.5 1.4 26-Week 1/23/2020 1.520 3.20 34.9 44.1 11.2 44.7 1.1 26-Week 1/30/2020 1.535 2.76 37.2 70.3 5.8 24.0 1.8 26-Week 2/6/2020 1.520 2.77 37.7 60.3 6.6 33.0 1.3 26-Week 2/13/2020 1.510 3.56 37.6 39.3 1.6 59.1 1.4 26-Week 2/20/2020 1.510 3.09 37.8 45.9 4.2 49.9 1.2 26-Week 2/27/2020 1.440 3.02 38.0 48.5 5.6 45.9 1.0 26-Week 3/5/2020 1.010 3.11 38.2 43.3 3.2 53.5 0.8 26-Week 3/12/2020 0.400 2.60 35.4 72.5 5.9 21.6 0.6 26-Week 3/19/2020 0.300 2.78 34.8 47.9 2.9 49.2 1.2 26-Week 3/26/2020 0.080 2.50 37.5 66.2 12.8 21.0 1.5 26-Week 4/2/2020 0.100 2.72 40.7 50.4 2.2 47.4 1.3 52-Week 1/30/2020 1.490 3.36 25.3 56.4 3.0 40.5 0.7 52-Week 2/27/2020 1.270 3.56 25.6 55.2 2.2 42.6 0.4 52-Week 3/26/2020 0.260 2.53 25.4 64.9 3.3 31.8 0.6 

CMB 2/13/2020 1.555 3.45 30.0 62.6 2.3 35.0 0.0 CMB 2/20/2020 1.585 2.71 40.0 63.0 4.6 32.4 0.0 CMB 3/24/2020 0.050 3.03 20.0 72.1 16.5 11.4 0.0 CMB 3/31/2020 0.025 2.88 60.0 38.5 0.9 60.6 0.0 CMB 4/1/2020 0.070 2.87 45.0 33.0 1.1 65.9 0.0 CMB 4/2/2020 0.080 2.79 60.0 37.8 0.8 61.5 0.0 

Bills
*Weighted averages of competitive awards. FRNs are reported on discount margin basis. **Approximated using prices at settlement and includes both competitive and non-competitive awards. For TIPS 10-Year equ

auction BEI is used as the inflation assumption.

Issue Settle Date Stop Out Rate (%)* Bid-to- Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) S

2-Year 1/31/2020 1.440 2.65 39.8 30.2 20.7 49.1 0.2 2-Year 3/2/2020 1.188 2.45 39.7 44.5 9.3 46.2 0.3 2-Year 3/31/2020 0.398 2.36 39.8 36.2 8.6 55.2 0.2 3-Year 1/15/2020 1.567 2.45 38.0 35.8 16.7 47.5 0.0 3-Year 2/18/2020 1.394 2.56 37.8 38.0 18.1 43.9 0.2 3-Year 3/16/2020 0.563 2.20 38.0 44.0 3.7 52.3 0.0 5-Year 1/31/2020 1.448 2.33 41.0 26.1 13.9 60.0 0.0 5-Year 3/2/2020 1.150 2.46 41.0 28.7 9.8 61.5 0.0 5-Year 3/31/2020 0.535 2.53 41.0 35.3 12.6 52.1 0.0 7-Year 1/31/2020 1.570 2.37 32.0 24.7 17.2 58.0 0.0 7-Year 3/2/2020 1.247 2.49 32.0 23.9 13.1 63.0 0.0 7-Year 3/31/2020 0.680 2.76 32.0 28.6 9.1 62.4 0.0 

10-Year 1/15/2020 1.869 2.45 24.0 28.7 16.1 55.2 0.0 10-Year 2/18/2020 1.622 2.58 27.0 23.9 14.8 61.3 0.0 10-Year 3/16/2020 0.849 2.36 24.0 29.8 9.2 61.0 0.0 30-Year 1/15/2020 2.341 2.54 16.0 19.1 17.9 63.0 0.0 30-Year 2/18/2020 2.061 2.43 19.0 19.1 19.4 61.5 0.0 30-Year 3/16/2020 1.320 2.36 16.0 21.6 8.9 69.5 0.0 

2-Year FRN 1/31/2020 0.154 3.23 20.0 48.6 1.7 49.6 0.0 2-Year FRN 2/28/2020 0.160 2.49 18.0 70.1 1.3 28.6 0.0 2-Year FRN 3/27/2020 0.220 2.91 18.0 36.2 1.5 62.3 0.0 

Nominal Coupons

Issue Settle Date Stop Out Rate (%)* Bid-to- Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) 

10-Year TIPS 1/31/2020 0.036 2.33 14.0 15.4 11.4 73.2 0.0 10-Year TIPS 3/31/2020 0.680 2.32 12.0 19.7 17.0 63.3 0.0 30-Year TIPS 2/28/2020 0.261 2.40 8.0 14.8 11.5 73.7 0.0 

TIPS
1

TBAC Presentation to Treasury
2

TBAC Charge

Recent events have suddenly and dramatically affected financial markets. Please 

comment on the evolution of liquidity conditions, both in Treasury market and broader 

financial markets. What are the primary factors currently driving interest rates, the shape 

of the yield curve, and relative demand for different maturities? Are these factors 

structural or temporary? How has the policy response affected liquidity conditions to 

date, and what other policy measures should be considered?
3

Executive summary

• Covid-19 brought about a “perfect storm” for financial markets. As the virus spread around the world in February 

and March, and economic activity began to fall, a large and urgent precautionary cash raise ensued, accompanied 

by aggressive deleveraging and risk reduction among investor portfolios. 

• This resulted in both very high safe haven demand for Treasury bills and substantial liquidity demand evident in the 

large volume of selling of off-the-run nominal Treasury securities, Treasury Inflation-Protected Securities (TIPS), and 

Agency Mortgage-Backed Securities (MBS). The acute demand for dealer balance sheet capacity, when those 

balance sheets already maintained high levels of Treasury debt, also contributed to deteriorating market functioning 

across a range of securities. Altogether, these forces temporarily impaired the market for Treasury debt, historically 

the deepest, most liquid market in the world. 

• The broad policy response – monetary, fiscal, and regulatory - has been substantial and has generally improved 

market functioning. In addition, the policy response has sought to cushion the economic blow and support eventual 

recovery. 

• The challenge ahead for the Treasury securities market is to facilitate the large and rapidly rising deficit financing 

needs associated with the fiscal policy response to the virus-related economic disruption, and to do so without a 

decline in market functioning nor unduly high interest rates for Treasury debt. We review the historical sources of 

demand for US Treasury debt, using the 2008 to 2010 increase in issuance as an example for understanding the 

potential relative demand for Treasury debt issuance in the coming months. 
The evolution of liquidity 

conditions in US Treasury and 

broader financial markets

4
US Primary Dealer holdings of Treasury securities 

Source: Federal Reserve Bank of New York; data as of 04/23/2020

• Average weekly Primary Dealer holdings increased significantly over the past two years and remained relatively elevated in early

2020. A variety of factors contributed to the rise in holdings including passage of the 2017 Tax Cuts and Jobs Act, the 2018 

supplemental budget agreement, and the subsequent increase in net Treasury supply as a result of the Fed’s redemptions in 2018. 

Changes in relative demand among investors may have also contributed to rising holdings, as well as Primary Dealer willingness to 

facilitate client demand for leverage. 

US Primary Dealer holdings of Treasuries Treasury net supply net of Fed’s holdings

5

Source: Haver; Fed; data as of Dec 2019

-500 bn

0 bn

500 bn

1000 bn

1500 bn

2014 2015 2016 2017 2018 2019

net supply

net supply net of Fed
6

Market functioning has periodically come under pressure since 2018

Market depth saw several episodes of decline

Spread between on-the-run and off-the-run widened Spread between SOFR and IOER spiked

• The last two years have been punctuated by periodic episodes 

of impaired market functioning attributable to some related and 

some unrelated factors.

• Treasury futures market depth declined by 50% or more on 

several occasions over this period, partially influenced by 

Proprietary Trading Firms’ (PTF) response to rising volatility.

• Spreads between on-the-run and off-the-run Treasury securities 

have abruptly widened several times and quarter-end funding 

pressures were evident with increased frequency through 2019, 

both likely related to dealer balance sheet capacity.

• February through April 2020 represented a severe episode of 

impaired market functioning with extreme observations of these 

factors and others such as bid-ask spread for Treasury debt. Note: Measures the average of the amount bid and the amount offered in the top of 

book (best bid/offer) for the TY futures contract. Source: Goldman Sachs Group Inc, 

Goldman Sachs Global Investment Research; data as of 04/28/2020. 

Source: JPMorgan Dataquery; data as of 04/27/2020 Source: New York Fed and Haver Analytics; data as of 04/27/2020
Most states are on lockdown 

7

Covid-19 represented a “perfect storm” for financial markets

Many everyday activities have been interrupted

Source: National Governors Association, University of Washington IMHE, and 

Goldman Sachs Global Investment Research. Data as of 04/15/2020. 

Note: It is a measure of the GDP-weighted share of the country that has shut 

schools, closed non-essential businesses, and issued stay-at-home orders

• Early 2020 market conditions were robust with the Fed’s Treasury bill purchases stirring debate about reserve expansion, a healthy 

outlook for global growth, and broad financial asset prices appreciating in a low volatility environment.

• On January 23rd, the city of Wuhan, China was locked down, restricting travel. On the weekend of February 23rd, the outbreak in Italy 

demonstrated how rapidly the virus was spreading to other continents.

• As the Covid-19 outbreak spread across the United States, more states declared shelter-in-place orders, creating significant disruption 

to the everyday lives of millions.

Source: Goldman Sachs Global Investment Research, National Governors 

Association, University of Washington IMHE, and Google. Data as of 04/15/2020
8

Demand for dollar funding rose

Volatility spiked in balanced portfolios

Higher margin requirements led to involuntary deleveraging

Flows into money market funds surged

The introduction of shelter-in-place policies motivated a large precautionary cash build

Source: CME Group; data as of 03/20/2020 Source: Federal Reserve Board and Haver Analytics; data as of 04/23/2020

Source: Bloomberg; as of 04/27/2020. Used a stylized portfolio that consists of 60% 

S&P 500 and 40% Bloomberg Barclays US Aggregate index. Realized annualized 

Source: EPFR; data as of 04/15/2020 volatility is calculated using daily total return over a 6M rolling window.

• Investors, businesses, and households raised cash amid substantial uncertainty as shelter-in-place policies were introduced.

• Rising financial market volatility led to aggressive (voluntary and involuntary) deleveraging by investors as volatility-based risk measures 

sharply increased. Margin requirements and repo lending conditions tightened significantly.

• Demand for overseas dollar funding rose substantially.
Treasury market functioning became impaired

Source: Michael Fleming and Francisco Ruela (NY Fed) calculations, based on data 

from BrokerTec; as of 04/17/2020 

Source: Bloomberg; data as of 04/28/2020

Treasury bid-ask spread at their widest since the crisis TY top-of-book depth declined 

TY implied yield vol surged

--- Five year (left axis) 

--- Ten-year (left axis) 

--- Thirty-year (right axis)

• The widespread, heightened investor demand for cash resulted in acute demand for dealer balance sheet capacity, contributing to wider 

bid-ask spreads, on-the-run/off-the-run spreads, and declining market depth. 

• Treasury market volumes expanded significantly, with heightened investor demand for Treasury bills coinciding with large selling of offthe-run nominal Treasuries and TIPS.

• The increasing number of market participants “teleworking” from remote locations may have contributed to impaired market functioning. 

Note: Measures the average of the amount bid and the amount offered in the top of 

book (best bid/offer) for the TY futures contract. Source: Goldman Sachs Group Inc, 

Goldman Sachs Global Investment Research; data as of 04/28/2020. 

Note: Shows Primary Dealer Weekly Transaction Volume in bills, coupons, and TIPS. 

Source: New York Fed; data as of 04/22/2020. 

Treasury volume was robust

9
Stress in funding and front-end markets

10

Widening in high quality short duration credit spreads

VIX spiked to levels last seen in GFC

Risk premiums rose in many markets 

Source: Bloomberg; data as of 04/28/2020

• High quality short duration credit instruments declined in price as prime money market funds liquidated securities.

• Agency mortgage spreads moved wider as levered mortgage sector investors reduced risk. 

• Impaired Treasury market functioning contributed to rising risk premia in other securities that are priced based upon a spread to Treasury 

yields, or that use Treasury yields as the discount rate.

• The S&P 500 suffered the most rapid 35% decline in post war history (23 sessions) from a record high valuation on February 19th, 

triggering frequent circuit breaker market suspensions during this period.

Source: Bloomberg, Federal Reserve Board and Haver Analytics; data as of 04/28/2020 Source: Bloomberg and Bank of America; data as of 04/28/2020

Widening in corporate and agency MBS spreads

Source: Bloomberg; data as of 04/28/2020. IG spread shows the spread of Bloomberg 

Barclays US Aggregate Corporate Index, and HY spread shows the spread of Bloomberg 

Barclays US Corporate High Yield Index. MBS spread shows the spread of Bloomberg 

Barclays US MBS Index. 

bp
Policy responses 

11
12

Substantial, targeted, and coordinated policy response

• The Fed reduced short term interest rates to 0.0 - 0.25% on March 15th and indicated the Federal Open Market 

Committee (FOMC) expects to “maintain this target range until it is confident that the economy has weathered recent 

events and is on track to achieve its maximum employment and price stability goals.”1

• From mid-March through today, the Federal Reserve has directly purchased from dealers nearly $2 trillion of Treasury 

securities and Agency MBS to improve market functioning. 

• A number of new targeted funding facilities were introduced by the Fed in conjunction with the Treasury Department 

via the Federal Reserve’s 13(3) authority. The breadth of actions was significant and specifically targeted to address 

funding stresses negatively impacting the provision of credit to real economy.

• In addition, the Fed announced multiple supervisory and regulatory adjustments in conjunction with other financial 

sector oversight agencies.

• Lastly, Congress delivered substantial fiscal policy support focused on providing relief for lost income to households 

and small to medium sized businesses.

1 From the March 15, 2020 Federal Open Market Committee Statement, available here: https://www.federalreserve.gov/monetarypolicy/files/monetary20200315a1.pdf
13

Policy actions have improved market functioning and constructed a policy safety net that 

reduces tail risks for financial markets and the real economy

• Treasury liquidity conditions have improved following the 

mid-March Fed announcements to cut rates to zero, 

expand Treasury purchases, and introduce the CPFF, 

MMLF, and PDCF. As of end of April, both Treasury bidask spread and estimated Treasury yield fitted error (an 

aggregate measure for dislocations in Treasury securities 

across the curve) have largely normalized. Treasury 

market depth has recovered about half of the decline 

relative to pre-Covid-19 levels.

• Stress in the commercial paper (CP) space took some 

time to calm. Upon the initial announcement of the CPFF 

on March 17th, CP-to-OIS spread continued to widen, but 

started to show signs of stabilization in late March, and 

has now reversed most of the widening. LIBOR-OIS 

spread started to tighten in April and has retraced roughly 

2/3 of the March widening.

• March 23rd announcements for TALF, PMCCF, SMCCF, 

and expanding Treasury and MBS purchases “in the 

amounts needed” marked the widest observation in IG 

and HY corporate spreads. Since then, IG and HY 

corporate spreads have tightened and retraced roughly 

60% and 50% of the widening respectively. MBS spreads 

reached the widest observation on March 19th and 

tightened meaningfully in the second half of March 

following substantial purchases by the Fed. 

Operation Announced Implemented

Technical operations to aid market functioning:

Treasury purchases to include coupons 13-Mar 13-Mar

Treasury purchases: “at least $500 billion” 15-Mar 16-Mar

MBS purchases: “at least... $200 billion” 15-Mar 16-Mar

Treasury and MBS purchases: “in the amounts needed” 23-Mar 23-Mar

CMBS purchases 23-Mar 27-Mar

Facilities for liquidity: 

Commercial Paper Funding Facility (CPFF) 17-Mar 14-Apr

Primary Dealer Credit Facility (PDCF) 17-Mar 20-Mar

Money Market Mutual Fund Liquidity Facility (MMLF) 18-Mar 23-Mar

Primary Market Corporate Credit Facility (PMCCF) 23-Mar

Secondary Market Corporate Credit Facility (SMCCF)* 23-Mar

Term Asset-Backed Securities Lending Facility (TALF) 23-Mar

Paycheck Protection Program Liquidity Facility (PPPLF) 6-Apr 16-Apr

Municipal Liquidity Facility (MLF) 9-Apr

Actions to support real economy: 

Fed cut policy rate by 50bp to 1.0 – 1.25% 3-Mar 3-Mar

Fed cut rate by 100bp to the zero lower bound 15-Mar 15-Mar

Main Street Business Lending Program (MSNLF, MSELF) 23-Mar

Appraisal guidance for real estate transactions 14-Apr 17-Apr

Other actions: 

Extending dollar swap lines 15-Mar 15-Mar

Encouraging use of Discount Window 15-Mar 15-Mar

FIMA repo facility 31-Mar 6-Apr

Temporary change to Supplementary Leverage Ratio Rule 1-Apr 1-Apr

Fiscal policy actions: 

Coronavirus Preparedness and Response Supplemental Appropriations Act 6-Mar

Families First Coronavirus Response Act 18-Mar

Coronavirus Aid, Relief, and Economic Security Act (CARES Act) 27-Mar

Paycheck Protection Program and Health Care Enhancement Act 24-Apr Note: Comments above reflect market levels as of end of April
Treasury yield fitted error close to fully recovered

14

TY top-of-book has partially recovered 

1 month implied yield vol has fully recovered 

Treasury market functioning has improved

Source: Bloomberg; data as of 04/28/2020

Source: J.P. Morgan; data as of 04/27/2020. It’s a measure of the aggregate yield error 

of all individual bonds relative to the par fitted curve constructed by J.P. Morgan.

Note: Measures the average of the amount bid and the amount offered in the top of 

book (best bid/offer) for the TY futures contract. Source: Goldman Sachs Group Inc, 

Goldman Sachs Global Investment Research; data as of 04/28/2020. 

bp

Treasury trading volume back to normal levels

Note: Shows Primary Dealer Weekly Transaction Volume in bills, coupons, and TIPS. 

Source: New York Fed; data as of 04/22/2020. 
(CP-OIS) spread and (LIBOR-OIS) spread

15

Front-end high quality credit instruments

S&P 500 and VIX

Other markets have also repaired by varying degrees

Source: Bloomberg; data as of 04/28/2020

Source: Bloomberg, Federal Reserve Board and Haver Analytics; data as of 04/28/2020 Source: Bloomberg and Bank of America; data as of 04/28/2020

Corporate and agency MBS spreads

Source: Bloomberg; data as of 04/28/2020. IG spread shows the spread of Bloomberg 

Barclays US Aggregate Corporate Index, and HY spread shows the spread of Bloomberg 

Barclays US Corporate High Yield Index. MBS spread shows the spread of Bloomberg 

Barclays US MBS Index. 

bp
Factors impacting the level of 

interest rates, the shape of the 

yield curve, and relative demand

16
US economic activity deteriorated sharply

Initial and Continuing Claims have surged in recent weeks Total Nonfarm Payrolls fell sharply in March 2020 

Consumer sentiment falling sharply PMI points to significant disruption in economic activity

Source: University of Michigan, Bloomberg, and Haver Analytics; data as of April 2020

Source: Department of Labor and Haver Analytics; data as of 04/30/2020 Source: Bureau of Labor Statistics and Haver Analytics; data as of March 2020

Source: IHS Markit and Haver Analytics; data as of April 2020

17

Thous. Thous. Thous.
18

Inflation forecasts skewed to the downside Unemployment rate expected to surge in Q2

The economy is expected to enter a recession GDP expected to contract meaningfully in Q2

The economic outlook has been revised down significantly

• Following the Covid-19 outbreak and subsequent actions to 

flatten the virus infection curve, large parts of economies around 

the world have shut down.

• Growth outlooks have been revised sharply lower. The Bloomberg 

median now expects a -26% Q/Q annualized decline in US real 

GDP in 2020 Q2.

• The median unemployment rate projection expects an increase to 

12.8% in Q2, and is expected to remain relatively elevated at the 

end of next year.

• Inflation forecasts were revised down and the distribution of 

outlooks is skewed to the downside.

• The timing and pace of re-opening remain highly uncertain. 

Source: Haver Analytics and Bloomberg; latest data as of Q4 2019 for GDP growth and Core PCE inflation, and Q1 2020 for unemployment rate. The range of projections are based on 

forecasts submitted on Bloomberg, forecast ranges and medians are as of 04/28/2020.

*SAAR: Seasonally Adjusted Annual Rate

18
19

Market pricing

Inflation expectations have declined Term premium remains low 

Source: Bloomberg; data as of 04/24/2020. 

Source: Bloomberg; data as of 04/28/2020

When will the FOMC lift 

the target federal funds 

range off the ZLB?

Percentage 

of responses 

By end of 2020 3%

H1 2021 10%

H2 2021 13%

H1 2022 16%

H2 2022 6%

2023 or later 52%

Source: Bloomberg; data as of 04/24/2020. *Note: A Bloomberg survey of 31 

economists that was conducted from April 20 to April 23, 2020

Source: Bloomberg; data as of 04/28/2020. Note: Estimate for 10-year Treasury term 

premium is from the New York Fed based on methodology developed by New York 

Fed economists Tobias Adrian, Richard Crump, and Emanuel Moench (or "ACM").

• Market pricing and survey expectations reflect the Fed’s current forward guidance combined with the downgraded economic outlook, which 

together indicate that an accommodative policy stance will remain necessary for an extended period of time. 

• Market-based inflation expectations have declined with the growth outlook and term premium has remained low.

Monetary policy expectations

Forward OIS rate term structure

Survey expectations

From a Bloomberg survey* of economists:

% %
20

Treasury debt yields and curve slope

Source: Bloomberg; data as of 04/28/2020

• The level of nominal yields is quite low by historical comparison and the slope of the nominal yield curve is relatively flat, in line with lower 

expectations for the path of policy rates, low inflation expectations and low term premium.

• US Treasury yields remain higher than other developed market rates but the differential has narrowed as German and Japanese sovereign 

bond yields have been relatively stable, already at very low or negative levels.

Treasury yields Treasury curves

Yield differential
21

Treasury issuance is expected to rise following the fiscal response to Covid-19

Source: Haver Analytics; data as of December 2019. Note: Treasury net supply 

computed as annual change in marketable Treasury securities held by the public

Federal deficit expected to grow to $3.7tn 

given recent policies 

Treasury net supply will grow substantially

• Given the severity of the shock to growth and income, Congress and the administration have delivered substantial fiscal policy support to 

cushion the economic blow and support recovery.

• The fiscal response points to the FY 2020 deficit nearly tripling relative to prior estimates, the Congressional Budget Office (CBO) projects 

$3.7tn deficit in FY 2020 and $2.1tn in FY 2021.

• With increased financing needs as implied by those deficit projections, Treasury issuance is expected to grow significantly over the months 

ahead.

Legislation: FY2020 FY2021

CBO Deficit, prior projection1 1,073 1,002

Families First Act2 135 57

CARES Act2 1,606 450

PPP & HCE Act2 435 43

Lost revenue3 475 550

Subtotal 3,723 2,101

Notes: numbers are $, in billions. FY ends Sept 30. 

Sources: 1. CBO March 2020 budget update (prior to Covid-19 outbreak) 2. 

CBO scoring of FFA, CARES Act, PPP and Health Care Enhancement Act, and 

April 24 budget update (CBO56335) 3. Estimated based upon the April 24 

budget update (CBO56335). 
Source: Flows of Funds transaction data in F.210 table. Note: 1) Sum of U.S.-chartered depository institutions, foreign banking offices in US, banks in US-affiliated areas, and credit unions. 2) Sum of 

property-casualty insurance companies and life insurance companies. 3) Sum of private pension funds, state and local govt retirement funds, and federal govt retirement funds. 4) Sum of mutual funds, closeend funds, and exchange-traded funds. 5) Includes nonfinancial corporate business, nonfinancial noncorporate business, government-sponsored enterprises, ABS issuers, and holding companies.

*Over the past two years pension was the 2nd largest source of demand but roughly 2/3 of the pension purchase was by Federal govt retirement funds which primarily hold non-marketable Treasury securities.

22

Identifying buyers of increased Treasury issuance 

Annual Treasury net purchase, breakdown by investor type

Aggregated from the Fed’s Z.1 Flows of Funds transaction data (F.210 table):

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sum ('08 to '19) Sum (2018&19)

Net purchase of Tsy 56 282 423 403 347 219 271 1,302 1,506 1,645 1,138 1,181 858 736 724 843 447 1,411 1,177 12,968 100% 2,588 100%

Foreign investors 19 161 276 367 245 150 165 712 554 740 355 590 423 314 43 (108) 308 115 181 4,227 33% 295 11%

Domestic investors 36 119 147 37 102 69 105 591 951 905 782 591 434 422 682 951 139 1,296 996 8,740 67% 2,292 89%

Household (98) (94) (29) (27) (172) (103) (139) 290 498 282 (106) 145 (142) (200) 327 101 (41) 613 322 2,088 16% 935 36%

Fed 40 78 37 51 26 35 (38) (265) 301 245 642 59 550 237 (16) (13) (22) (243) 100 1,575 12% (143) -6%

State & local govt 19 27 25 30 134 67 61 (98) 45 16 (58) 34 31 5 7 74 (9) (62) (45) (61) 0% (107) -4%

Banks1

 (20) 41 5 (27) (7) 1 10 (21) 95 102 (47) 88 (28) 192 38 122 (37) 124 125 754 6% 249 10%

Insurance2

 1 47 5 20 15 (4) (58) 14 52 24 16 (2) (8) 21 6 32 33 (21) (15) 151 1% (36) -1%

Pension3

 36 8 47 57 63 49 33 70 115 127 110 148 123 113 56 170 34 427 193 1,686 13% 620 24%

Money mkt funds 49 4 (11) (30) (15) (6) 97 409 (176) (72) 110 14 38 (72) 53 312 (95) 171 163 855 7% 334 13%

Mutual funds & ETF4

 (8) 9 17 26 28 8 11 7 124 140 42 99 (60) 206 169 105 215 128 158 1,335 10% 286 11%

Brokers & dealers 15 (28) 55 (73) (14) 4 98 212 (116) (14) 66 67 (72) (92) 16 36 22 139 (73) 192 1% 66 3%

Other5

 2 27 (5) 10 43 20 29 (29) 14 55 8 (59) 2 11 25 11 39 21 68 166 1% 89 3%

Market levels for reference (annual average)

2Y Tsy yield (avg, %) 3.8 2.6 1.6 2.4 3.8 4.8 4.4 2.0 0.9 0.7 0.4 0.3 0.3 0.4 0.7 0.8 1.4 2.5 2.0

10Y Tsy yield (avg, %) 5.0 4.6 4.0 4.3 4.3 4.8 4.6 3.6 3.2 3.2 2.8 1.8 2.3 2.5 2.1 1.8 2.3 2.9 2.1

2s10s Tsy curve (avg, bp) 120 199 237 190 44 -2 27 165 230 250 232 151 203 208 145 100 93 38 16

• Total Treasury debt outstanding grew by approximately $14 trillion since 2008. Roughly 1/3 of that was absorbed by foreign investors with the 

remaining 2/3 absorbed by domestic investors. Over the past two years, foreign investors’ demand has slowed and domestic investors took an 

increased share with households the largest source of recent demand.* 

• The 2008-2010 period may provide helpful context as marketable Treasury debt outstanding nearly doubled in those three years ($4.5tn to 

$8.9tn). Foreign investors and domestic households together absorbed roughly 70% of the net issuance over those three years, 45% and 25% 

respectively. Money market funds along with brokers and dealers bought a meaningful amount of Treasuries in 2008 as issuance ramped 

higher, subsequently becoming net sellers in the following two years. 

• Given the fiscal response to Covid-19, the FY2020 deficit projection has increased significantly, pointing to a large and rapid increase in 

Treasury net supply. We review each of these buyer bases in turn in an attempt to discern where the marginal demand may exist to absorb 

increased Treasury issuance. 
23

Foreign Investors

Source: TIC data and Haver Analytics; data as of February 2020

• Foreign official demand has remained relatively stable in recent years, following a period of strong growth in the years after the financial crisis.

• Foreign private investor demand has been steady despite minimal FX-hedged yield pickup from Treasury securities. Of note, demand for 

intermediate to longer maturity US credit products has been reasonably robust.

• Foreign holdings of Treasury coupon securities are concentrated in front-end and belly maturities, with over 60% of the holdings maturing 

within 5 years.

• Foreign investors (official and private) would need to substantially increase the recent pace of purchases to replicate their share of purchases 

from the 2008-10 experience.

Maturity structure of foreign-held Treasury coupon securities

Source: Bloomberg; data as of 04/28/2020

FX-hedged yield pickup of 10y Treasuries

Foreign holdings of Treasury securities 

Source: TIC data; maturity structure as of June 2019

0%

20%

40%

60%

80%

<= 5y 5-10y 10-30y

Remaining maturity

Foreign holdings of Treasury coupon securities

Outstanding marketable Treasury coupon securities
24

Brokers and Dealers

Treasury net supply net of Fed’s purchase Primary Dealers’ inventory of T-Bills

• Brokers and dealers are historically the initial absorption mechanism for unexpected increases in Treasury issuance.

• Brokers and dealers purchased roughly 15% of Treasury issuance in 2008, a substantial increase in share of purchases relative to their 

historical average. Their holdings declined in 2009-2010 as securities matured or were intermediated to other investors.

• The Fed’s purchases of roughly $1.5 trillion Treasury securities since mid-March have created a substantial net negative supply of 

Treasury coupon securities net of Fed purchases.

• Recent Treasury bill supply has been robust, generating a significant positive net supply of Treasury bills net of Fed purchases. As a 

result, dealer holdings of Treasury bills have increased sharply.

Source: New York Fed and Bloomberg; data as of April 2020

-1000 bn

-500 bn

0 bn

500 bn

1000 bn

1500 bn

Bill monthly net supply net of Fed

Coupon monthly net supply net of Fed

Source: Haver Analytics and Federal Reserve. April 2020 supply estimate from 

Morgan Stanley

-20 bn

0 bn

20 bn

40 bn

60 bn

80 bn

2017 2018 2019 2020

Primary Dealers' holdings of Treasury bills 
25

Domestic Banks

In WWII, bank holdings of Treasuries rose sharply Reserves and Govt securities changing bank assets

• In 2008 to 2010, banks played a modest role in absorbing the increase in Treasury issuance. However, during the 1940’s “Wartime 

Finance” era, banks played an important role in absorbing Treasury debt issuance, and holdings rose to over 50% of insured 

commercial bank assets, even while the Treasury and the Fed cooperated to cap Treasury yields.

• More recently, Treasury holdings have represented a small share of bank assets. As the Fed’s recent open market operations (OMO) 

and lending efforts have added substantial reserves to the banking system, the composition of bank assets has changed meaningfully. 

Conditional upon leverage constraints and the yield spread to funding costs, banks represent a potential source of demand for

Treasury bills and shorter maturity Treasury debt. 

• The Fed temporarily exempted Treasuries and reserves from its supplementary leverage ratio (SLR) rule on April 1st, saying, 

“restrictions that accompany this balance sheet growth may constrain the firms' ability to continue to serve as financial intermediaries 

and to provide credit to households and businesses. The change to the supplementary leverage ratio will mitigate the effects of those 

restrictions and better enable firms to support the economy.”

Note: Cash assets includes vault cash, cash items in process of collection, balances 

due from depository institutions, and balances due from Federal Reserve Banks. 

Source: Federal Reserve Board and Haver Analytics; data as of 04/24/2020

Source: Federal Deposit Insurance Corporation and Haver Analytics; data as of 

08/29/2019
26

Funded ratio Steady rise of fixed income allocation

Domestic Corporate Pensions

Source: Milliman 2019 Corporate Pension Funding Study Source: Milliman 2019 Corporate Pension Funding Study

• Demographic trends point to continued steady demand for intermediate to longer maturity Treasuries from defined contribution plans. 

• The de-risking trend among domestic defined benefit corporate pension plans seems likely to continue. The majority of those plans are 

actively executing or considering a de-risking glide-path that increases the fixed income allocation. The Treasury allocation is typically 

concentrated in longer maturities.

• Pension plans’ recent share of purchases has increased, and that demand can be less price sensitive conditional upon other factors.

75%

85%

95%

105%

115%

125%

The funded ratio of 

the largest 100 corporate defined benefit pension 

plan sponsors

37%

49%

30%

35%

40%

45%

50%

55%

60%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fixed income allocation

Fixed Income(100 largest plans) Fixed Income(all plans)
27

Domestic Households

Real yields Price return potential calculation

Estimated probability of mark-to-market loss over one year

0%

10%

20%

30%

40%

50%

Estimated probability of mark-to-market loss over one year in 

Bloomberg Barclays US Treasury Aggregate Index

Source: Bloomberg, data as of 4/22/2020. Computed assuming a normal distribution with the 

index’s yield-to-maturity (currently 0.5%) as mean, and long-term annualized volatility of the 

index’s daily price return (4.6% annualized vol) as standard deviation.

Source: Bloomberg, JPMorgan Dataquery; Price return estimate is calculated 

using the modified duration and convexity for on-the-run Treasuries and the 

Bloomberg Barclays US Aggregate Treasury Index. Source: Bloomberg; data as of 4/28/2020

Correlation of bond and equity returns

Source: Bloomberg; data as of 4/24/2020

• Households represented a large source of demand for Treasury issuance in the 2008-2010 period although nominal and real interest rates 

were significantly higher during that time.

• Price appreciation potential has declined as a consequence of lower rates, unless Treasuries trade with negative yields.

• The probability of a negative annual mark-to-market return in the US Treasury Aggregate Bond index is again above 40%, similar to the 

post-GFC period of aggressive monetary policy forward guidance. Household demand stalled during the 2011-2014 period. 

• The stock-bond correlation remains negative, but hedge effectiveness of Treasuries declines as price appreciation potential is reduced.

Estimated price return if yield goes to zero

As of 4/28/2020 As of 06/30/2009

2y Tsy 0% 2%

5y Tsy 2% 13%

10y Tsy 6% 34%

30y Tsy 33% 109%

Tsy Agg 4% 14%
Domestic Investment Funds

Flows into bond and equity funds

Source: Bloomberg, data as of 04/28/2020 Source: EPFR, data as of 04/15/2020

Share of Treasuries in US Aggregate Bond Index

*Note: weight is based on the amount of outstanding Treasuries (excluding Fed’s holdings) with maturity >= 1 year

-120 bn

-100 bn

-80 bn

-60 bn

-40 bn

-20 bn

0 bn

20 bn

40 bn

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Weekly flows into bond funds ($bn)

• For US fixed income mutual funds and ETFs that are 

benchmarked to various aggregate bond indices, the weight of 

Treasuries in the benchmark plays an important role in their 

Treasury allocation. The share of Treasuries in US Aggregate 

Bond index has been increasing over the past few years, and 

may increase further with rising Treasury issuance.*

• The pace of bond fund inflows has been robust for a decade, a 

significant source of demand for intermediate maturities. 

Investment funds will need to maintain their share of purchases 

at current valuations to replicate the 2008-2010 experience.

28
29

Money Market Funds

Money market funds AUM vs Treasury bill yield Money market prime funds vs government funds AUM

Source: ICI, Bloomberg; data as of 04/29/2020

• As of Q4 2019, 28% of assets held by money market funds were Treasury securities (17% in Treasury bills and 11% in Treasury front-end 

coupon securities).

• Money market funds have seen large inflows in the past two months, in part a result of the precautionary cash build. The three-month 

Treasury bill yield followed expectations for the policy rate lower, and traded negative in late March amid increased demand.

• Looking back at the 2008-2010 experience, money market funds saw strong inflows in the financial crisis, and they absorbed a meaningful 

share of the increase in Treasury bills outstanding in 2008. In 2009-2010 they experienced outflows as bill yields remained near zero.

• One notable development in recent years is that as a result of the money market fund reform, there has been a shift from prime money 

market funds to government money market funds, suggesting that an increased share of inflows will be invested in Treasuries.

Source: ICI, Bloomberg; data as of 04/29/2020

*Note: Based on Flows of Funds holdings data as of Q4 2019.

0 bn

500 bn

1000 bn

1500 bn

2000 bn

2500 bn

3000 bn

3500 bn

4000 bn

4500 bn Money market prime funds AUM

Money market government funds AUM

0%

1%

2%

3%

4%

5%

2500 bn

3000 bn

3500 bn

4000 bn

4500 bn

5000 bn

Money market funds net assets (LHS)

6-month Treasury bill yield (RHS)
30

The Federal Reserve

Fed’s Treasury holdings increased sharply in recent weeks Recent purchase pace compared to prior QEs

Source: Federal Reserve Board and Haver Analytics; data as of 04/30/2020

• The Fed has committed to maintain market functioning and support the recovery to full employment and target inflation.

• The Fed demonstrated the elastic nature of its balance sheet throughout the 2008-2014 period, maintaining a relatively large share of 

Treasury purchases to reinforce accommodative financial conditions. 

• Since mid-March, the Fed has once again demonstrated this elasticity by purchasing roughly $1.5 trillion Treasury securities and close to 

$600 billion MBS. The pace of Treasury purchase has gradually slowed from $75 billion/day ($375 billion/week) to $8 billion/day ($40 

billion/week*). Nonetheless, the recent pace of OMO’s significantly exceeds the pace of Treasury purchases seen in LSAP/ QE programs 

over the past decade.

0.0tn

0.5tn

1.0tn

1.5tn

2.0tn

0 10 20 30 40 50 60 70 80 90 100 110

Weeks since start

Cumulative change in Fed’s SOMA holdings 

(include Treasuries and MBS) since start

Since 

Mar11, 2020

QE2: Nov 2010 - Jun 2011

QE1: Dec 2008 - Jun 2010

QE3: Sep 2012 - Oct 2014

Source for table: Federal Reserve Bank of New York; data as of 04/28/2020

Source for graph: Federal Reserve Board and Haver Analytics; data as of 04/23/2020

$0.0tn

$0.5tn

$1.0tn

$1.5tn

$2.0tn

$2.5tn

$3.0tn

$3.5tn

$4.0tn

2008 2010 2012 2014 2016 2018 2020

Fed's holdings of US Treasury securities 

in the System Open Market Account (SOMA)

*Note: based on New York Fed’s announcement on 05/01/2020

Tsy securities Agency MBS 

QE1 Dec 2008 to Mar 2010 $300 $1,250

QE2 Nov 2010 to Jun 2011 $600

QE3 Sep 2012 to Oct 2014 $790 $823

OMO Mar 13, 2020 to Now $1,469 $594

Total purchased ($ bn)
31

Conclusions

31

➢ Q1 2020 witnessed a “perfect storm” with respect to market functioning as the Covid-19 virus spread around the world. Real economic activity 

collapsed in many countries, and substantial uncertainty exists with respect to the timing and pace of recovery. 

➢ An urgent precautionary cash build led to acute demand for dealer balance sheet capacity, contributing along with other factors to an eventual 

impairment of Treasury market functioning. 

➢ The broad policy response – monetary, fiscal and regulatory - has been substantial, targeted and coordinated. Actions taken have improved market 

functioning and reduced tail risks for financial markets and the economy.

➢ Treasury borrowing needs are now rising rapidly as a consequence of the fiscal policy response. CBO projects deficits of $3.7 trillion and $2.1 

trillion in FY 2020 and 2021 respectively.

➢ The challenge ahead is to establish a regime that allows large deficit financing needs to be met without a decline in market functioning nor unduly 

high interest rates for Treasury debt. A review of the 2008-2010 period may be instructive as outstanding Treasury debt doubled during this time. 

➢ Questions for consideration:

• Will foreign investors maintain their share of Treasuries outstanding as issuance grows in the future? 

• What additional facilities or regulatory changes may be necessary to support primary dealers absorbing Treasury issuance similar to the 

2008 observation? 

• Are there regulatory adjustments that could encourage domestic banks to hold more Treasuries without crowding out lending activities? 

• Could potential changes in market structure improve the durability of liquidity provision across the range of Treasury securities during 

periods of elevated volatility?

• Will the outlook for growth and inflation improve such that nominal interest rates move higher without negatively impacting financial 

conditions, thereby attracting increased demand for Treasuries among more price sensitive domestic buyers?