Treasury Presentation to TBAC
Office of Debt Management

Fiscal Year 2019 Q2 Report
Table of Contents

2

I. Executive Summary p. 4

II. Fiscal

A. Quarterly Tax Receipts p. 6

B. Monthly Receipt Levels p. 7

C. Largest Outlays p. 8

D. Treasury Net Nonmarketable Borrowing p. 9

E. Cumulative Budget Deficits p. 10

F. Deficit and Borrowing Estimates p. 11

G. Budget Surplus/Deficit p. 12

H. Privately-Held Net Marketable Borrowing Outlook P. 13

III. Financing

A. Sources of Financing p. 16

B. OMB’s Projections of Net Borrowing from the Public p. 18

C. Interest Rate Assumptions p. 19

D. Projected Net Marketable Borrowing Assuming Future Issuance Remains Constant p. 20

E. Estimate of the Effect of SOMA Purchases on Projected Net Borrowing P. 21

IV. Portfolio Metrics

A. Historical Weighted Average Maturity of Marketable Debt Outstanding p. 23

B. Bills, TIPS & FRNs Outstanding as a Percent of Marketable Debt Outstanding P. 24

C. Maturity Profile p. 25

V. Demand

A. Summary Statistics p. 28

B. Bid-to-Cover Ratios p. 29

C. Investor Class Awards at Auction p. 34

D. Primary Dealer Awards at Auction p. 38

E. Direct Bidder Awards at Auction p. 39

F. Foreign Awards at Auction p. 40

G. Foreign Holdings: Official and Private P. 41
Section I:

Executive Summary

3
Receipts and Outlays

• FY 2019 year-to-date receipts were $10 billion (1%) higher than the comparable period last year. Customs duties rose $17 billion (87%), 

largely resulting from new tariffs. Individual refunds were $14 billion (9%) lower. Gross excise taxes were $10 billion (24%) higher, 

due primarily to a one-year return of the Health Insurance Providers tax in October 2018. Non-withheld income and SECA taxes were 

up $9 billion (5%). Withheld income and FICA taxes were down $6 billion (<1%), driven by lower withholding rates. Federal reserve 

earnings were $14 billion (35%) lower, due to the Federal Reserve paying higher short-term interest rates to depository institutions. 

Gross corporate taxes were $20 billion (18%) lower, due to the lower corporate tax rates established by the Tax Cuts and Jobs Act 

(TCJA). 

• After calendar adjustments, FY 2019 year-to-date outlays were $98 billion (5%) higher than the comparable period last year. Defense 

expenditures were up $27 billion (9%) due to increased spending for military personnel, operations, maintenance, and procurement. 

Social Security Administration outlays were $27 billion (5%) higher, and Veterans Affairs expenditures were $4 billion (4%) higher, 

both due to increases in enrollment, the average benefit, and a cost-of-living adjustment of 2.8%. Treasury outlays were $16 billion 

(5%) higher due primarily to increased interest on the Public Debt. Health and Human Services spending was $16 billion (3%) higher 

due to increased Medicare and Medicaid expenditures. 

Projected Net Marketable Borrowing (FY 2019) 

• Based on the quarterly borrowing estimate, Treasury’s Office of Fiscal Projections (OFP) currently forecasts a net privately-held 

marketable borrowing need of $30 billion for Q3 FY 2019, with an end-of-June cash balance of $270 billion. For Q4 FY 2019, the net 

privately-held marketable borrowing need is projected to be $160 billion, with an end-of-September cash balance of $85 billion. 

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

System Open Market Account (SOMA), but includes financing required due to SOMA redemptions. 

Demand for Treasury Securities

• Bid-to-cover ratios for all securities were largely stable over the last quarter.

• Foreign demand remained steady.

Highlights of Treasury’s May 2019 Quarterly Refunding Presentation

to the Treasury Borrowing Advisory Committee (TBAC)

4
Section II:

Fiscal

5
6

Source: United States Department of the Treasury

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

Mar-09

Jun-09

Sep-09

Dec-09

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

Dec-18

Mar-19

Year-over-Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl FICA)
7

Individual Income Taxes include withheld and non-withheld. Social Insurance Taxes include FICA, SECA, RRTA, UTF deposits, FUTA and 

RUIA. Other includes excise taxes, estate and gift taxes, customs duties and miscellaneous receipts. 

Source: United States Department of the Treasury 

0

20

40

60

80

100

120

140

160

Mar-09

Jun-09

Sep-09

Dec-09

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

Dec-18

Mar-19

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

Individual Income Taxes Corporation Income Taxes Social Insurance Taxes Other
8

Source: United States Department of the Treasury 

0

100

200

300

400

500

600

700

HHS

SSA

Treasury

Defense

VA

Agriculture

OPM

Education

Transportation

Other Defense Civil

Homeland Security

Labor

$ bn

Largest Outlays

Oct - Mar FY 2018 Oct - Mar FY 2019
9

Source: United States Department of the Treasury

(40)

(30)

(20)

(10)

0

10

20

30

Q2-09Q3-09Q4-09Q1-10Q2-10Q3-10Q4-10Q1-11Q2-11Q3-11Q4-11Q1-12Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14Q4-14Q1-15Q2-15Q3-15Q4-15Q1-16Q2-16Q3-16Q4-16Q1-17Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18Q4-18Q1-19Q2-19

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

Foreign Series State and Local Govt. Series (SLGS) Savings Bonds
10

Source: United States Department of the Treasury

0

100

200

300

400

500

600

700

800

900

1,000

October

November

December

January

February

March

April

May

June

July

August

September

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2017 FY2018 FY2019
FY 2019-2021 Deficits and Net Marketable Borrowing Estimates*, in $ billions

Primary Dealers1 OFP2 OMB3 CBO4 CBO5

FY 2019 Deficit Estimate 950 1,091 897 955

FY 2020 Deficit Estimate 1,010 1,101 903 866

FY 2021 Deficit Estimate 1,100 1,069 974 945

FY 2019 Deficit Range 870-1,075

FY 2020 Deficit Range 900-1,250

FY 2021 Deficit Range 975-1,300

FY 2019 Privately-Held Net Marketable Borrowing Estimate 1,183 990

FY 2020 Privately-Held Net Marketable Borrowing Estimate 1,097

FY 2021 Privately-Held Net Marketable Borrowing Estimate 1,135

FY 2019 Privately-Held Net Marketable Borrowing Range 850-1,387

FY 2020 Privately-Held Net Marketable Borrowing Range 905-1,242

FY 2021 Privately-Held Net Marketable Borrowing Range 851-1,300

FY 2019 SOMA Redemption Estimate 245 262

FY 2020 SOMA Redemption Estimate

FY 2021 SOMA Redemption Estimate

FY 2019 Net Marketable Borrowing Estimate 938 728 1,168 885 1,049

FY 2020 Net Marketable Borrowing Estimate 1,097 1,168 965 924

FY 2021 Net Marketable Borrowing Estimate 1,135 1,136 1,025 993

Estimates as of: Apr-19 Apr-19 Mar-19 Jan-19 Aug-18

1Based on primary dealer feedback in April 2019. Estimates above are medians. 

2Treasury's Office of Fiscal Projections (OFP) borrowing estimates announced on April 29, 2019.

3Table S-10 of OMB's "A Budget for a Better America, Fiscal Year 2020," March 2019.

4Table 1-1 of CBO's "The Budget and Economic Outlook: 2019 to 2029," January 2019 (current law).

5Table 2 of CBO's "An Analysis of the President's 2019 Budget," August 2018.

*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the

 Federal Reserve’s System Open Market Account (SOMA), but includes financing required due to SOMA redemptions. 11
(16%)

(14%)

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

200

20092010201120122013201420152016201720182019202020212022202320242025202620272028

Debt to fGDP

$ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit (LHS) Surplus/Deficit (RHS)

Projections are from OMB’s Table S-10 of “A Budget for a Better America, Fiscal Year 2020,” March 2019.

OMB’s Projection

12
13

-$100

$0

$100

$200

$300

$400

$500

$600

Q1 Q2 Q3 Q4

$ bn

FY 16 FY 17 FY 18 FY 19 FY 19 (projection-OFP)

Note: Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal 

Reserve’s System Open Market Account (SOMA), but includes financing required due to SOMA redemptions.

Privately-Held Net Marketable Borrowing Outlook
Section III:

Financing

14
15

Assumptions for Financing Section (pages 16 to 21)

• Portfolio and SOMA holdings as of 03/31/2019.

• Estimates reflect a reduction in SOMA’s monthly Treasury redemption cap from $30 billion to $15 

billion beginning in May 2019 and an end date for SOMA capped redemptions at the end of September 

2019, according to the FOMC’s “Balance Sheet Normalization Principles and Plans” published on 

March 20, 2019. 

• Estimates assume announced issuance sizes and patterns remain constant for nominal coupons, TIPS, 

and FRNs given changes made at the February 2019 refunding, while using a total of ~$2.48 trillion of 

bills outstanding. 

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

as of 03/31/2019. 

• No attempt was made to account for future financing needs. 
16

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

Open Market Account (SOMA), but includes financing required due to SOMA redemptions.

**An end-of-March 2019 cash balance of $334 billion versus a beginning-of-January 2019 cash balance of $402 billion. By keeping the cash 

balance constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance 140 Security Gross Maturing Net Gross Maturing Net

Net Coupon Issuance 234 4-Week 645 565 80 1,210 1,150 60

Subtotal: Net Marketable Borrowing 374 8-Week 435 395 40 750 470 280

13-Week 576 558 18 1,134 1,203 (69)

Ending Cash Balance 334 26-Week 498 567 (69) 993 1,113 (120)

Beginning Cash Balance 402 52-Week 104 86 18 182 146 36

Subtotal: Change in Cash Balance (68) CMBs 103 50 53 103 50 53

Bill Subtotal 2,361 2,221 140 4,372 4,132 240

Net Implied Funding for FY19 Q2** 442

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 56 41 15 111 82 29

2-Year 80 52 28 234 156 78

3-Year 114 72 42 225 144 81

5-Year 82 63 19 240 157 83

7-Year 64 47 17 190 138 52

10-Year 75 25 50 149 52 97

30-Year 51 6 45 101 9 92

5-Year TIPS 0 0 0 14 0 14

10-Year TIPS 24 15 9 35 15 20

30-Year TIPS 8 0 8 13 0 13

Coupon Subtotal 554 320 234 1,312 752 560

January - March 2019 Fiscal Year-to-Date

Coupon Issuance Coupon Issuance

Sources of Privately-Held Financing in FY19 Q2*

January - March 2019 January - March 2019 Fiscal Year-to-Date

Bill Issuance Bill Issuance
17

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

Market Account (SOMA), but includes financing required due to SOMA redemptions.

**Keeping announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs based on changes made at the February 2019 

refunding. 

***Assumes an end-of-June 2019 cash balance of $270 billion versus a beginning-of-April 2019 cash balance of $334 billion.

Financing Estimates released by the Treasury can be found here: http://www.treasury.gov/resource-center/data-chart-center/quarterlyrefunding/Pages/Latest.aspx

Assuming Constant Coupon Issuance Sizes**

Treasury Announced Net Marketable Borrowing*** 30

Net Coupon Issuance 269

Implied Change in Bills (239)

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 56 41 15 167 123 44

2-Year 120 52 68 354 208 146

3-Year 114 72 42 339 216 123

5-Year 123 99 24 363 256 107

7-Year 96 59 37 286 197 89

10-Year 75 31 44 224 83 141

30-Year 51 0 51 152 9 143

5-Year TIPS 32 54 (22) 46 54 (8)

10-Year TIPS 11 0 11 46 15 31

30-Year TIPS 0 0 0 13 0 13

Coupon Subtotal 678 409 269 1,990 1,161 829

Coupon Issuance Coupon Issuance

Sources of Privately-Held Financing in FY19 Q3*

April - June 2019

April - June 2019 Fiscal Year-to-Date
18

OMB's projections of the change in debt held by the public (borrowing) are from Table S-10 of “A Budget for a Better America, Fiscal Year 2020,” 

March 2019. “Other” represents borrowing from the public to provide direct and guaranteed loans.

1,168 1,168 1,136 1,112

970

761

692

634

568 563

60%

65%

70%

75%

80%

85%

(600)

(400)

(200)

0

200

400

600

800

1,000

1,200

1,400

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Debt to GDP

$ 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)

The bubbles represent the total net marketable borrowing for that year

$ bn %

Primary Deficit 1,041 12

Net Interest 7,312 81

Other 669 7

Total 9,022 100

FY2019 - FY2028 Cumulative Total
19

OMB's economic assumption of the 10-Year Treasury note rates are from Table 2 of OMB’s “A Budget for a Better America, Fiscal Year 2020,” 

March 2019. CBO’s economic assumption of the 10-Year Treasury note rates are from Table E-1 of CBO’s “The Budget and Economic Outlook: 

2019 to 2029,” January 2019. The forward rates are the implied 10-Year Treasury note rates on March 31, 2019. 

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

3.8

4

20192020202120222023202420252026202720282029

10-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note

CBO Budget Outlook (January 2019) OMB FY 2020 Budget (March 2019)

Implied Forward Rates as of 03/31/2019

10-Year Treasury Rate of 2.406% 

as of 03/31/2019
20

Projected Net Marketable Borrowing 

Assuming Future Issuance Remains Constant*

Treasury’s latest primary dealer survey estimates can be found on page 11. OMB's projections of the change in debt held by the public are from 

Table S-10 of “A Budget for a Better America, Fiscal Year 2020,” March 2019. CBO’s current law budget projections of the change in debt held by 

the public are from Table 1-1 of “The Budget and Economic Outlook: 2019 to 2029,“ January 2019. CBO’s budget projections of the change in 

debt held by the public are from Table 2 of “An Analysis of the President’s 2019 Budget,” August 2018. See table in the appendix section for 

details.

* Projections reflect a reduction in SOMA’s monthly Treasury redemption cap from $30 billion to $15 billion beginning in May 2019 and an end 

date for SOMA capped redemptions at the end of September 2019, according to the FOMC’s “Balance Sheet Normalization Principles and 

Plans” published on March 20, 2019. 

0

200

400

600

800

1,000

1,200

1,400

1,600

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

$bn

Fiscal Year

Projected Net Marketable Borrowing CBO's "The Budget and Economic Outlook: 2019 to 2029," January 2019 (current law)

OMB's FY 2020 Budget, March 2019 PD Survey Marketable Borrowing Estimates, April 2019

OFPs FY 2019 Net Marketable Borrowing Estimate, April 2019 CBO's "An Analysis of the President's 2019 Budget," August 2018
21

 -

 200

 400

 600

 800

 1,000

 1,200

 1,400

 1,600

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

$ Bn

Fiscal Year

Effect of SOMA Agency Debt and MBS Reinvestments Projected Net Marketable Borrowing

CBO's "The Budget and Economic Outlook: 2019 to 2029," January 2019 (current law) OMB's FY 2020 Budget, March 2019

PD Survey Marketable Borrowing Estimates, April 2019 OFP's FY 2018 Net Marketable Borrowing Estimate, April 2019

CBO's "An Analysis of the President's 2019 Budget ", August 2018

Treasury’s latest primary dealer survey estimates can be found on page 11. OMB's projections of the change in debt held by the public are from 

Table S-10 of “A Budget for a Better America, Fiscal Year 2020,” March 2019. CBO’s current law budget projections of the change in debt held by 

the public are from Table 1-1 of “The Budget and Economic Outlook: 2019 to 2029,“ January 2019. CBO’s budget projections of the change in debt 

held by the public are from Table 2 of “An Analysis of the President’s 2019 Budget,” August 2018. 

*Projections reflect a reduction in SOMA’s monthly Treasury redemption cap from $30 billion to $15 billion beginning in May 2019 and an end 

date for SOMA capped redemptions at the end of September 2019, according to the FOMC’s “Balance Sheet Normalization Principles and Plans” 

published on March 20, 2019. Projections assume a prepayment of the most recent realized 3M CPR. The total principal payments are then used 

to purchase Treasury securities that match the maturity composition of Treasury securities outstanding from the private market. These purchases 

increase marketable borrowing when they mature and are rolled over at Treasury auctions as add-ons. 

Estimate of the Effect of SOMA Purchases on Projected Net Borrowing 

Assuming SOMA Agency Debt and Mortgage Reinvestments Match Treasury

Securities Outstanding and Future Issuance Remains Constant*
Section IV:

Portfolio Metrics

22
23

40

45

50

55

60

65

70

75

80

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019

Weighted Average Maturity (Months)

Calendar Year

Historical Weighted Average Maturity of Marketable 

Debt Outstanding

Historical Historical Average from 1980 to end of FY 2019 Q2

68.6 months on 

03/31/2019

59.9 months (Historical Average 

from 1980 to Present)
24

0

5

10

15

20

25

30

35

40

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019

Percent

Calendar Year

Bills, TIPS & FRNs Outstanding as a Percent of 

Marketable Debt Outstanding

Bills TIPS FRNs

Bills Historical Average = 22.9%

Max 10.7%

Max 2.5%

Last 

15.6%

Last 

8.9%

Last 2.4%

Max 

35.6%
25

20

30

40

50

60

70

80

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019

Percent

Calendar Year

Treasury Maturity Profile History

Percent Maturing <=1 Year Percent Maturing <= 3 Years
26

End of Fiscal Year & Most Recent Quarter Maturity Profile, $ billions

End of Fiscal Year & Most Recent Quarter Maturity Profile, percent

Date (0,1] (1,2] (2,3] (3,5] (5,7] (7,10] (10,30] (0,3] (0,5]

Sep-11 27.2 13.9 10.2 16.0 11.1 10.9 10.6 51.3 67.3

Sep-12 27.5 12.8 10.3 16.9 11.3 10.3 11.0 50.5 67.4

Sep-13 25.4 13.1 10.7 17.0 12.5 9.8 11.5 49.2 66.2

Sep-14 23.9 14.2 10.7 18.0 11.7 9.1 12.4 48.8 66.8

Sep-15 24.1 13.8 10.4 18.5 11.5 8.7 12.9 48.3 66.9

Sep-16 25.1 13.4 11.3 17.6 11.0 8.4 13.2 49.7 67.4

Sep-17 25.6 14.3 10.6 17.1 10.3 8.3 13.7 50.5 67.6

Sep-18 28.2 13.6 10.5 16.2 10.0 7.9 13.6 52.3 68.4

Mar-19 28.8 13.7 10.8 15.5 9.9 7.7 13.6 53.3 68.8

Date (0,1] (1,2] (2,3] (3,5] (5,7] (7,10] (10,30] Total (0,5]

Sep-11 2,620 1,334 980 1,541 1,070 1,053 1,017 9,616 6,476

Sep-12 2,951 1,373 1,104 1,811 1,214 1,108 1,181 10,742 7,239

Sep-13 2,939 1,523 1,242 1,965 1,454 1,136 1,331 11,590 7,669

Sep-14 2,935 1,739 1,319 2,207 1,440 1,113 1,528 12,281 8,199

Sep-15 3,097 1,775 1,335 2,382 1,478 1,121 1,654 12,841 8,589

Sep-16 3,423 1,828 1,538 2,406 1,501 1,151 1,800 13,648 9,195

Sep-17 3,631 2,027 1,504 2,433 1,466 1,180 1,946 14,188 9,596

Sep-18 4,299 2,076 1,603 2,472 1,531 1,209 2,077 15,268 10,450

Mar-19 4,580 2,190 1,716 2,471 1,580 1,230 2,161 15,929 10,958
Section V:

Demand

27
28

*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 equivalent, a 

constant auction BEI is used as the inflation assumption.

Security 

Type Term Stop Out Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards 

($bn)

% Primary 

Dealer*

% 

Direct*

% 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA 

"AddOns" ($bn)

10-Year 

Equivalent 

($bn)**

Bill 4-Week 2.400 2.8 635.3 58.3 3.6 38.1 19.7 0.0 5.8

Bill 8-Week 2.394 3.1 435.1 58.1 3.5 38.4 4.9 0.0 7.8

Bill 13-Week 2.400 3.0 520.1 50.5 4.1 45.4 16.9 0.0 15.5

Bill 26-Week 2.451 3.0 443.2 54.3 4.0 41.6 18.8 0.0 26.7

Bill 52-Week 2.448 3.5 75.2 50.3 6.0 43.7 2.8 0.0 8.9

Bill CMB 2.400 3.1 103.0 53.6 2.6 43.7 0.0 0.0 1.0

Coupon 2-Year 2.455 2.6 118.6 32.3 18.3 49.3 1.4 1.9 27.6

Coupon 3-Year 2.503 2.5 113.5 39.1 15.2 45.7 0.5 9.2 41.8

Coupon 5-Year 2.412 2.4 122.9 22.7 18.3 58.9 0.1 2.0 68.4

Coupon 7-Year 2.481 2.6 96.0 16.0 24.7 59.3 0.0 1.5 72.7

Coupon 10-Year 2.678 2.5 75.0 24.2 13.9 61.8 0.0 6.5 83.0

Coupon 30-Year 3.024 2.2 51.0 27.1 15.7 57.1 0.0 4.6 127.8

TIPS 10-Year 0.763 2.4 23.9 17.0 10.3 72.7 0.1 0.0 26.6

TIPS 30-Year 1.093 2.5 8.0 15.0 3.0 82.0 0.0 0.4 24.8

FRN 2-Year 0.147 3.1 55.9 48.8 0.4 50.8 0.1 0.0 0.0

Total Bills 2.411 3.0 2,211.9 55.2 3.8 41.0 63.1 0.0 65.9

Total Coupons 2.539 2.5 576.9 27.4 18.0 54.6 2.1 25.7 421.2

Total TIPS 0.845 2.4 31.9 16.5 8.5 75.0 0.1 0.4 51.4

Total FRN 0.147 3.1 55.9 48.8 0.4 50.8 0.1 0.0 0.0

Summary Statistics for Fiscal Year 2019 Q2 Auctions
29

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jun-09

Oct-09

Jan-10

Apr-10

Jul-10

Nov-10

Feb-11

May-11

Aug-11

Dec-11

Mar-12

Jun-12

Sep-12

Jan-13

Apr-13

Jul-13

Oct-13

Feb-14

May-14

Aug-14

Nov-14

Mar-15

Jun-15

Sep-15

Dec-15

Apr-16

Jul-16

Oct-16

Jan-17

May-17

Aug-17

Nov-17

Feb-18

Jun-18

Sep-18

Dec-18

Mar-19

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 moving average)

26-Week (13-week moving average) 52-Week (6-month moving average)
30

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

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

Dec-18

Mar-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs

(6-Month Moving Average)
31

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

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

Bid-to-Cover Ratio

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

(6-Month Moving Average)

2-Year 3-Year 5-Year
32

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

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

Bid-to-Cover Ratio

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

(6-Month Moving Average)

7-Year 10-Year 30-Year
33

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Feb-08

May-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-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

Dec-18

Mar-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) Long-end (20- & 30-year)
34

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository 

Institutions, Individuals, Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

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

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 Other
35

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository 

Institutions, Individuals, Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

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

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 Other
36

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository 

Institutions, Individuals, Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

70%

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

6-month moving average

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

by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
37

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository 

Institutions, Individuals, Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

70%

80%

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

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 Other
38

Excludes SOMA add-ons. 

10%

20%

30%

40%

50%

60%

70%

80%

Sep-14

Nov-14

Jan-15

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

% of Total Competitive Amount Awarded

Primary Dealer 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)
39

Excludes SOMA add-ons. 

0%

5%

10%

15%

20%

25%

Sep-14

Nov-14

Jan-15

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

% 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)
40

Foreign includes both private sector and official institutions.

0

10

20

30

40

50

60

70

80

90

100

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

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

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2/3/5 7/10/30 TIPS FRN
41

Source: Treasury International Capital (TIC) System.

For more information on foreign participation data, including more details about the TIC data shown here, please refer to Treasury 

Presentation to TBAC “Brief Overview of Key Data Sources on Foreign Participation in the U.S. Treasury Securities Market” at the

Treasury February 2019 Refunding.

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

20002001200220032004200520062007200820092010201120122013201420152016201720182019

$ bn

Bills

Outstanding Foreign Holdings Foreign % (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

20002001200220032004200520062007200820092010201120122013201420152016201720182019

$ bn

Nominal Coupons, TIPS, and FRNs

Outstanding Foreign Holdings Foreign % (RHS)

Total Foreign Holdings
Appendix

42
43

Historical Net Marketable Borrowing and Projected Net Borrowing 

Assuming Future Issuance Remains Constant, $ billions

Net borrowing capacity reflects a reduction in SOMA’s monthly Treasury redemption cap from $30 billion to $15 billion beginning in May 2019 

and an end date for SOMA capped redemptions at the end of September 2019, according to the FOMC’s “Balance Sheet Normalization 

Principles and Plans” published on March 20, 2019. 

Treasury’s latest primary dealer survey estimates can be found on page 11. OMB's projections of the change in debt held by the public are from 

Table S-10 of “A Budget for a Better America, Fiscal Year 2020,” March 2019. CBO’s baseline budget projections of the change in debt held by the 

public are from Table 1-1 of CBO’s “The Budget and Economic Outlook: 2019 to 2029,” January 2019. 

Fiscal 

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

Historical/Projected 

Net Borrowing 

Capacity

OMB's FY 2020 

Budget of the U.S. 

Government

CBO's "The Budget and 

Economic Outlook: 

2019 to 2029"

Primary Dealer 

Survey

2014 (119) (92) 669 88 123 669 

2015 (53) (282) 641 88 164 558 

2016 289 (82) 477 64 47 795 

2017 155 9 292 55 9 519 

2018 438 209 316 51 26 1,040 

2019 240 517 255 49 55 1,117 1,168 885 938 

2020 0 461 366 45 34 907 1,168 965 1,097 

2021 0 237 348 20 0 605 1,136 1,025 1,135 

2022 0 117 374 10 (0) 502 1,112 1,169 

2023 0 142 262 11 5 419 970 1,181 

2024 0 (10) 328 23 (1) 341 761 1,136 

2025 0 (46) 313 (58) (0) 209 692 1,260 

2026 0 (41) 295 (46) (3) 204 634 1,253 

2027 0 4 243 (33) (2) 212 568 1,241 

2028 0 (15) 247 (63) 3 173 563 1,472 

2029 0 (7) 205 (64) 0 135 250 1,401 
44 *Weighted averages of competitive awards.

**Approximated using prices at settlement and includes both competitive and non-competitive awards.

Bills

Issue Settle Date Stop Out 

Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

4-Week 1/8/2019 2.390 2.81 38.8 67.6 9.9 22.4 1.2 0.0 0.4

4-Week 1/15/2019 2.380 3.07 38.6 59.2 10.7 30.0 1.4 0.0 0.4

4-Week 1/22/2019 2.370 3.05 38.8 59.4 8.5 32.1 1.2 0.0 0.4

4-Week 1/29/2019 2.355 2.78 43.6 59.5 1.9 38.6 1.4 0.0 0.4

4-Week 2/5/2019 2.390 2.65 48.7 63.3 3.0 33.7 1.3 0.0 0.5

4-Week 2/12/2019 2.390 2.79 48.6 61.1 3.6 35.3 1.4 0.0 0.5

4-Week 2/19/2019 2.395 2.85 47.8 44.4 2.1 53.5 2.2 0.0 0.5

4-Week 2/26/2019 2.390 2.83 48.2 62.5 2.1 35.5 1.8 0.0 0.4

4-Week 3/5/2019 2.410 2.78 58.7 50.9 1.2 47.9 1.3 0.0 0.5

4-Week 3/12/2019 2.405 2.88 58.6 49.4 1.8 48.8 1.4 0.0 0.5

4-Week 3/19/2019 2.420 2.43 58.3 78.0 2.1 19.9 1.7 0.0 0.5

4-Week 3/26/2019 2.470 2.30 57.9 66.7 1.8 31.5 2.1 0.0 0.5

4-Week 4/2/2019 2.400 3.01 48.7 35.8 3.0 61.2 1.3 0.0 0.4

8-Week 1/8/2019 2.375 3.14 29.8 56.9 7.2 35.8 0.2 0.0 0.5

8-Week 1/15/2019 2.390 3.25 29.7 67.6 7.0 25.4 0.3 0.0 0.5

8-Week 1/22/2019 2.365 3.47 29.8 70.2 7.8 21.9 0.2 0.0 0.5

8-Week 1/29/2019 2.370 2.74 34.7 71.7 2.0 26.3 0.3 0.0 0.6

8-Week 2/5/2019 2.400 2.69 34.7 73.1 2.2 24.8 0.3 0.0 0.6

8-Week 2/12/2019 2.385 3.21 34.8 56.9 3.0 40.0 0.2 0.0 0.6

8-Week 2/19/2019 2.400 2.95 34.6 53.5 2.8 43.6 0.4 0.0 0.6

8-Week 2/26/2019 2.400 3.17 34.7 50.1 1.9 48.1 0.3 0.0 0.6

8-Week 3/5/2019 2.410 3.02 33.8 59.7 2.1 38.2 1.2 0.0 0.6

8-Week 3/12/2019 2.400 3.54 34.7 45.4 2.9 51.6 0.3 0.0 0.6

8-Week 3/19/2019 2.400 3.09 34.7 52.7 2.6 44.7 0.3 0.0 0.6

8-Week 3/26/2019 2.420 2.89 34.8 48.9 1.4 49.6 0.2 0.0 0.6

8-Week 4/2/2019 2.395 3.11 34.4 51.6 3.8 44.6 0.6 0.0 0.6
45 *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-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

13-Week 1/10/2019 2.410 3.06 37.6 52.9 9.4 37.7 1.4 0.0 1.1

13-Week 1/17/2019 2.405 2.90 37.7 62.2 7.6 30.2 1.3 0.0 1.2

13-Week 1/24/2019 2.390 3.02 40.9 60.1 6.8 33.1 1.1 0.0 1.2

13-Week 1/31/2019 2.375 3.27 40.8 54.7 4.1 41.2 1.2 0.0 1.2

13-Week 2/7/2019 2.385 3.03 43.6 49.5 3.8 46.7 1.4 0.0 1.3

13-Week 2/14/2019 2.400 2.96 43.4 46.9 2.9 50.3 1.6 0.0 1.3

13-Week 2/21/2019 2.395 2.99 43.7 51.6 3.0 45.4 1.3 0.0 1.3

13-Week 2/28/2019 2.405 2.97 46.0 46.8 2.2 51.0 2.0 0.0 1.4

13-Week 3/7/2019 2.410 2.76 46.9 53.0 2.5 44.5 1.1 0.0 1.4

13-Week 3/14/2019 2.405 3.02 46.8 44.8 2.2 52.9 1.2 0.0 1.4

13-Week 3/21/2019 2.410 2.70 46.8 46.0 3.3 50.7 1.2 0.0 1.4

13-Week 3/28/2019 2.410 2.87 45.9 42.2 2.8 54.9 2.1 0.0 1.4

26-Week 1/10/2019 2.470 2.98 34.9 58.9 4.8 36.3 1.1 0.0 2.1

26-Week 1/17/2019 2.460 3.22 33.9 50.5 4.1 45.3 2.1 0.0 2.1

26-Week 1/24/2019 2.450 3.10 37.0 46.7 4.4 48.9 2.0 0.0 2.3

26-Week 1/31/2019 2.450 3.09 37.1 44.5 11.0 44.4 1.9 0.0 2.3

26-Week 2/7/2019 2.440 2.66 37.8 66.0 3.5 30.5 1.2 0.0 2.3

26-Week 2/14/2019 2.450 2.95 37.5 55.6 2.3 42.1 1.5 0.0 2.3

26-Week 2/21/2019 2.455 3.08 37.6 55.6 3.1 41.3 1.4 0.0 2.2

26-Week 3/7/2019 2.460 3.03 37.9 52.6 3.1 44.3 1.1 0.0 2.2

26-Week 3/14/2019 2.455 3.09 37.7 52.1 4.0 43.9 1.3 0.0 2.2

26-Week 3/21/2019 2.450 2.86 37.8 60.3 2.8 36.9 1.2 0.0 2.2

26-Week 3/28/2019 2.415 2.88 37.1 60.2 1.7 38.1 1.9 0.0 2.2

52-Week 1/31/2019 2.515 3.16 24.8 58.0 5.5 36.5 1.2 0.0 3.1

52-Week 2/28/2019 2.470 3.60 25.0 44.5 5.1 50.5 1.0 0.0 2.9

52-Week 3/28/2019 2.360 3.69 25.3 48.6 7.3 44.1 0.7 0.0 3.0

CMB 2/11/2019 2.395 3.00 50.0 51.1 2.4 46.5 0.0 0.0 0.3

CMB 3/1/2019 2.400 3.34 23.0 55.2 2.8 42.0 0.0 0.0 0.3

CMB 3/7/2019 2.410 3.06 30.0 56.7 2.8 40.4 0.0 0.0 0.4

Bills
46

*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 equivalent, a constant 

auction BEI is used as the inflation assumption.

Issue Settle Date Stop Out 

Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

2-Year 1/31/2019 2.600 2.56 39.6 27.5 19.1 53.4 0.4 0.0 9.3

2-Year 2/28/2019 2.503 2.50 39.5 38.8 22.6 38.6 0.5 1.9 9.4

2-Year 4/1/2019 2.261 2.60 39.5 30.7 13.3 56.0 0.5 0.0 9.0

3-Year 1/15/2019 2.559 2.44 37.8 40.4 17.7 41.9 0.2 0.0 12.9

3-Year 2/15/2019 2.502 2.55 37.8 35.9 18.5 45.7 0.2 9.2 16.2

3-Year 3/15/2019 2.448 2.56 37.8 41.1 9.4 49.5 0.2 0.0 12.6

5-Year 1/31/2019 2.576 2.41 41.0 24.6 15.2 60.2 0.0 0.0 22.9

5-Year 2/28/2019 2.489 2.40 41.0 19.8 22.5 57.7 0.0 2.0 23.1

5-Year 4/1/2019 2.172 2.35 41.0 23.8 17.2 59.0 0.0 0.0 22.3

7-Year 1/31/2019 2.625 2.54 32.0 16.8 24.9 58.3 0.0 0.0 24.3

7-Year 2/28/2019 2.538 2.60 32.0 16.4 28.4 55.2 0.0 1.5 24.6

7-Year 4/1/2019 2.281 2.54 32.0 14.8 20.7 64.5 0.0 0.0 23.8

10-Year 1/15/2019 2.728 2.51 24.0 22.3 20.8 56.9 0.0 0.0 23.9

10-Year 2/15/2019 2.689 2.35 27.0 28.4 12.2 59.5 0.0 6.5 35.0

10-Year 3/15/2019 2.615 2.59 24.0 21.5 9.1 69.4 0.0 0.0 24.0

30-Year 1/15/2019 3.035 2.19 16.0 26.7 15.9 57.3 0.0 0.0 36.1

30-Year 2/15/2019 3.022 2.27 19.0 26.6 17.0 56.4 0.0 4.6 55.5

30-Year 3/15/2019 3.014 2.25 16.0 28.1 14.1 57.8 0.0 0.0 36.2

2-Year FRN 1/31/2019 0.115 2.89 20.0 52.1 0.3 47.7 0.0 0.0 0.0

2-Year FRN 2/22/2019 0.149 2.70 18.0 47.9 0.4 51.6 0.0 0.0 0.0

2-Year FRN 3/29/2019 0.180 3.78 18.0 46.0 0.6 53.5 0.0 0.0 0.0

Nominal Coupons

Issue Settle Date Stop Out 

Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

10-Year TIPS 1/31/2019 0.919 2.42 13.0 16.6 14.3 69.1 0.0 0.0 14.7

10-Year TIPS 3/29/2019 0.578 2.43 11.0 17.4 5.6 77.0 0.0 0.0 11.9

30-Year TIPS 2/28/2019 1.093 2.46 8.0 15.0 3.0 82.0 0.0 0.4 24.8

TIPS
Office of Debt Management

TIPS Program Update

April 2019
TIPS Issuance Review

2

 TIPS represent over $1.4 trillion in inflation adjusted principal or just under 9 

percent of marketable borrowing outstanding

 TIPS daily trading volume averages around $15 billion

 The TIPS program has saved the taxpayer money over the life of the program

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0

2

4

6

8

10

12

199719981999200020012003200420052006200720092010201120122014201520162018

TIPS Issuance Outstanding

TIPS % Of Outstanding

TIPS $ Amount Outstanding (RHS)

%

Source: Treasury

Note: TIPS % is in par value terms; $ amount inclues CPI accual

$ tn.

0

2

4

6

8

10

12

14

16

18

20

Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

TIPS Average Daily Volume

$ bn.

Source: Treasury

Note: 60-day MA; effective trading day is from 6pm- 6pm.
TIPS Liquidity

3

 Trading volumes in the five-year portion of the curve rival those in the 10-year

 Off-the-run trading volumes are similar to those in on-the-run, though with 

lower turnover

0

1

2

3

4

5

6

7

8

9

Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

TIPS Average Daily Volume By Maturity 

Bucket

[0, 2] (2, 6] (6, 11] (11, +]

$ bn.

Source: Treasury

Note: 60-day MA; effective trading day is from 6pm- 6pm.

0

2

4

6

8

10

12

Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

TIPS Average Daily Volume, On- vs Offthe-run

Off On

$ bn.

Source: Treasury

Note: 60-day MA; effective trading day is from 6pm- 6pm.
TIPS Ability to Move Risk

4

 Trading in DV01 terms has improved for longer-dated TIPS

 On-the-runs still dominate off-the-runs in daily DV01

0

1

2

3

4

5

6

7

8

Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

TIPS Average Daily DV01 By Maturity 

Bucket

[0, 2] (2, 6]

(6, 11] (11, +]

$ mn.

Source: Treasury

Note: 60-day MA; effective trading day is from 6pm- 6pm.

0

1

2

3

4

5

6

7

8

9

Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

TIPS Average Daily DV01,

On- vs Off-the-run

Off On

$ mn.

Source: Treasury

Note: 60-day MA; effective trading day is from 6pm- 6pm.
TIPS Investor Diversification

5

 Auction participation from investment funds and foreign investors has increased

 Concentration of liquidity providers has stabilized at a competitive level

0

5

10

15

20

25

0

10

20

30

40

50

60

70

1997 2000 2003 2006 2009 2012 2015 2018

TIPS Auction Shares (12 Auction MA)

Investment Funds

Foreign and International (RHS)

%

Source: Treasury 

%

850

900

950

1000

1050

1100

1150

1200

Oct-17 Feb-18 Jun-18 Oct-18 Feb-19

Primary Dealer TIPS Trading HHI 

HHI

Source: Treasury

Note: 120-day MA; effective trading day is from 6pm- 6pm.
Announced TIPS Calendar Enhancements for 2019

6

 Introduced a second 5-year new issue in October and increased auction sizes 

in order to:

 Reduce gaps in the TIPS yield curve

 Improve liquidity and the pricing of inflation seasonality

 Facilitate curve and breakeven positions

 Reduce concentration of rebalancing needs

 Meet structural demand for 5-year TIPS from

 Fund flows into shorter-dated ETFs and mutual funds as well as target date funds

 Investors with a preference for more pure inflation protection vs real yield duration

 Share of TIPS issuance will now be more balanced between 5-year and 10-

year maturities and across calendar quarters

 The 30-year TIPS will now auction every 6 months with increased auction 

sizes to maintain a stable float

 TIPS auctions have been well received since the announced changes

 Overall TIPS issuance will increase to maintain proportion of outstanding
TIPS 2019 Auction Calendar Size Expectations

7
TIPS Auction Calendar Expectations 2019 - 2021

8

Source: April Primary Dealer Auction Size Survey
TIPS Auction Calendar Expectations 2019 - 2021

9

Source: April Primary Dealer Auction Size Survey
TIPS Auction Calendar Expectations 2019 - 2021

10

Source: April Primary Dealer Auction Size Survey
TBAC – Charge One

SOFR Pricing

April 2019
1

The Charge

Treasury continues to evaluate the possibility of issuing floating rate notes tied to SOFR; one 

important component of this evaluation pertains to market pricing. How should Treasury 

model expected interest costs for potential SOFR-linked issuance? How has existing SOFRlinked issuance by other issuers priced compared to expected ‘fair value’? What factors have 

affected pricing of existing issuance and what factors do you expect to be most important 

going forward? Are there any lessons regarding product structure that Treasury can draw from 

SOFR-linked issuance to-date? 
2

Executive Summary

• There has been a significant increase in SOFR FRN issuance recently

• We estimate current Treasury SOFR FRN pricing as low as 

• + 1 bps DM for 1-year FRN

• + 3 bps DM for 2-year FRN

• Based on this estimate, and using current forward curves, it would NOT cost the Treasury more to 

issue SOFR FRN rather than T-bill FRN

• We expect greatest demand from 2a7 government only money market funds, focused on the 1-year 

maturity.

• We estimate the Treasury could (cumulatively) issue up to $250 billion 1-year SOFR FRN without 

cannibalizing demand from other Treasury securities. 

• 2-year SOFR FRN could cannibalize demand from T-bill FRN due to 2A7 fund WAL constraints. 
3

SOFR Futures Markets

• Source : CME
4

SOFR Swap Markets

Growth primarily in SOFR vs FF swaps

• Source : LCH
5

SOFR Cash Issuance

• Source : CME
6

Comparing SOFR FRN vs T-Bill FRN 

Forward breakeven estimates using current futures and swaps 

markets

Breakeven Rate: Discount Margin on 1-year SOFR 

Floater would need to be 2bps less than 3-month Bill 

Floater (using SOFR futures)

Breakeven Rate: Discount Margin on 2-year SOFR 

Floater could be 6bps more than 3-month Bill Floater 

(using SOFR futures)

Source: Bloomberg, (as of 4/25/19) Source: Bloomberg, (as of 4/25/19)

(0 DM)
7

Indicative DM on Treasury T-Bill Floating Rate Note (TF)

as of 04/25/19

Source Bloomberg (as of 4/18/19)

• Current TF 04/20 (1-year) DM mid ~ 3.0 bps 

• Current TF 04/21 (2-year) DM mid ~14 bps (though this is wide relative to long term average)

• Based on prior estimate of bills/SOFR spreads, current break even for Treasury SOFR FRNs are:

• 1-year ~ 1 DM (3-2)

• 2-year ~20 DM (14+6)

Source: Bloomberg.
8

Treasury SOFR FRN pricing based on GSE SOFR FRN New Issue 

Levels

• Agency SOFR FRN new issue levels are fair to Libor FRN 

levels (after accounting for month-end and cost of LIBOR

widening option)

• Using current Treasury – Agency spread of 3 bps, we 

estimate Treasury SOFR FRN pricing as low as:

• 1-year DM ~+1 bps

• 2-year DM ~+3 bps

• Hypothetical levels should move in line with market 

differentials (GSE new issue levels and Agency-Treasury 

spreads)

• GSE issuance >12 months has been limited and may not 

be reflective of investor demand or execution levels

Source: Bloomberg 

Given the breakeven estimates on previous slide which 

are based on current market levels, a SOFR FRN should 

not cost the Treasury more than a T-Bill FRN

Historical GSE FRN New Issue Levels
9

Comparing Actual Treasury T-Bill FRN to a hypothetical Treasury 

SOFR FRN (assumes 2-year Final Maturity)

 The grey line shows the breakeven SOFR spread (discount margin) that would be needed at the time to 

compensate you for the difference in issuing a SOFR product versus actual Treasury T-Bill FRNs assuming 2-

year final maturity

Source: Bloomberg
10

Comparing hypothetical Treasury T-Bill FRN to a hypothetical 

Treasury SOFR FRN (assumes 1-year Final Maturity)

 The grey line shows the breakeven SOFR spread (discount margin) that would be needed at the time 

to compensate you for the difference in issuing a SOFR product versus actual Treasury T-Bill FRNs 

assuming 1-year final maturity

 During a tightening cycle likely beneficial to issue SOFR Floaters (auction discount margin would like 

be lower than breakeven discount margin) and opposite likely true during easing cycle

Source: Bloomberg
11

Estimating Month-/Quarter-/Year-end dynamics with SOFR:

SOFR FRNs would yield an additional 0.25–0.50 bps per year

 Dealers look to reduce balance sheet at 

month-end increasing SOFR levels on monthend and most acutely at year-end

 On average SOFR has been higher on monthend than the average of the 5 trading days 

before and the 5 trading days after by:

o Month-end Only: 5.4bps

o Quarter-end: 13.2bps

o Year-end: 15.7bps

 This spike would be approximately 0.25-0.5 

bps of additional interest cost over the 

course of the year
12

Treasury Floater Introduction Did Not Materially Impact GC Repo 

Levels

 2a7 Government Only Money Market Funds are the largest buyer of Treasury floaters

 Currently they hold approximately 50% of outstandings

 This had minimal impact on Treasury repo pricing when introduced

 Charts below shows a) almost no correlation between tri party repo volume and tri party repo rates vs 

FED RRP rate and b) no impact on T-Bill OIS spread after T-Bill FRN was introduced in Jan 2014

 We expect SOFR linked FRN introduction would also not have a significant impact on Treasury 

funding markets as there is currently un-met 2a7 demand for repo in bilateral markets

Source: Bloomberg Source: Bloomberg 
13

Estimating The Demand From 2a7 Government Money Market Funds

 2a7 Funds could add a similar proportion of SOFR FRNs outstanding to their Bill FRN holdings by 

decreasing allocation to O/N Repo 

 Assuming a 1-year final maturity, we estimate 2a7 funds could hold a large portion (>50%) without 

significantly impacting WAL

 Depending on size of SOFR program, a 2-year final maturity would see lower demand unless 2a7 

Funds extend WAL above historical averages as WAL is typically below 100 days

Chart uses: CRANE GOVT INSTITUTIONAL Average WAL since 12/31/14: 85 days
14

Potential Repo Market Developments Could Affect The Pricing of 

SOFR-Linked Issuance

Mandate

1. Expansion of FICC Sponsored Repo

• SOFR on last trading day of month-end / quarter-end would trade at a level closer to previous trading days. It 

would decrease volatility on last trading day and lower spikes in level.

• SOFR would be marginally higher as increased volume by non-dealers in the bilateral repo market would be included 

in calculation

2. Implementation of the Basel proposal to report total leverage exposure as a daily average versus quarter-end snapshot

• This would lower month-end spikes, however, SOFR would be permanently higher as dealers manage balance sheet 

on a daily basis. 

3. Development of standing repo facility by the Federal Reserve (assumes 25bps above IOER)

• The repo facility would cap the potential spike in SOFR at month-ends to whatever the rate on the facility was. 
15

Appendix

Progress on LIBOR transition since 

Nov 2018
16

Recent Developments in SOFR Transition

 Overall, while there has been increased focus on LIBOR transition, and some informative speeches 

from regulators, there has been limited realized progress in transitioning the US market.

 Derivative Markets – Continue to be the focus in order to foster familiarity, build liquidity and inform 

a forward looking term structure.

 Futures market volumes and open interest at CME continue to grow.

 Aggregate OI across 1m and 3m future exceeds 100k; OI has doubled since December 2018. 

Euro$ OI is 12.5mm, as reference.

 OIS Swaps cleared in limited size (small DV01) with small number of total transactions.

 ISDA published final results from their consultation on spread adjustment in December ‘18.

 Overwhelming support for compounded setting in arrears with mean/median approach.

 Next deliverable is for ISDA to produce description of methodology this summer. This 

will likely be followed by a public comment period. There will also be consultations for precessation triggers and additional currencies. 

 CCPs (LCH, CME) announced they will switch to SOFR discounting and PAI (price alignment 

interest) from Fed Funds in 2nd half 2020. Intend to use ‘big bang’ approach with compensation.

 Cash Markets – Issuance ($77bln) primarily from agencies with limited secondary market liquidity.

 ARRC endorsed fallback language for new issuance is expected to be published late April 2019.

 Fed minutes noted staff work to publish backward looking average SOFR. Fed published staff 

working paper on methodology for forward looking term rate (infer from derivatives).

 No progress in efforts to address legacy paper – amendment or legislative solution.

Source : CME, LCH, ISDA, ARRC
17

Timeline for LIBOR Transition

End 2021: 

FCA No 

Longer 

Compels

Banks to 

Submit

2019 2020 2021

Industry:

June 2019: ISDA to produce methodology for spread adjustment.

H2 2020: CCPs switch to SOFR for discounting 

and Price Alignment Interest (PAI).

TBD: Official Sector / Industry develop plan for legacy cash bonds

Dec 2019: ISDA releases amended fallback language.

End 2021: Creation of term SOFR as implied by SOFR derivatives.

April/May 2019: ARRC endorses rate waterfall and standard fallback language for cash products.

Official Sector :

H1 2020: Fed publishes a series of 

backward-looking average SOFR.

Summer 2019: ISDA supplemental consultation for USD LIBOR and 

request for market feedback on pre-cessation issues.

Source: ARRC Paced Transition Plan, https://www.newyorkfed.org/arrc/sofr-transition#pacedtransition

ISDA “Timeline for Implementation of IBOR Fallbacks”, Feb 2019 https://www.isda.org/a/blKME/Timeline-for-Implementation-of-IBOR-Fallbacks-Updated-February-2019.pdf
18

ARRC Working Group Fallback Language for New Issues

 ARRC has tasked product focused working groups (FRN, Loans, Securitized, Consumer) with proposing 

fallback language that may be used in new LIBOR issuance. 

 Enhanced fallback language will provide greater certainty to investors on what to expect if LIBOR 

were to be discontinued, and allow for continued performance of floating rate securities.

 The substantive elements of the fallback language are (i) what triggers moving away from LIBOR 

and (ii) how the replacement rate is defined.

 The working groups contemplated certain “pre-cessation” triggers, with some divergence between 

products. 

 The pre-cessation triggers are intended to provide a mechanism to move to a more appropriate 

rate for securities that are not otherwise easily amended.

 ISDA had earlier decided not to include pre-cessation triggers but will be launching a follow-up 

consultation.

 ARRC is focused on achieving alignment among all products and derivatives.

 ARRC Triggers (“pre-cessation” in blue, not currently in ISDA proposal): 

1. Public statement by administrator that it has ceased or will cease to provide LIBOR.

2. Public statement by regulatory supervisor that administrator will cease to provide LIBOR.

3. Public statement by regulatory supervisor that the benchmark is no longer representative.

4. For securitized products only, underlying collateral in a deal moves to the alternative rate.

Source: ARRC “A User’s Guide to SOFR” April 2019. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Users_Guide_to_SOFR.pdf

ARRC recommendations for More Robust Fallback language for New Issuance of LIBOR Floating Rate Notes and Syndicated loans, April 2019.

https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/FRN_Fallback_Language.pdf

https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Syndicated_Loan_Fallback_Language.pdf
19

ARRC Working Group Fallback Language – Waterfall to Fallback 

Rates

 Waterfall of Fallback Rates:

1. Term SOFR recommended by Relevant Governmental Body + Spread

2. Compound SOFR + Spread

3. Replacement rate recommended by Relevant Governmental Body + Spread

 To address a scenario where SOFR has been discontinued, fallback to a rate selected by the 

Relevant Governmental Body (ARRC or similar) as a replacement for a SOFR-based rate. 

4. Replacement rate in ISDA Definitions + Spread

 To address a scenario where SOFR has been discontinued and the relevant governmental body 

has not recommended a replacement , fallback to rate waterfall embedded in ISDA standard 

definitions at the time. 

 The ISDA Fallback Rate embedded in the current ISDA definition :

1. Relevant Governmental Body recommended replacement for SOFR (#3 above)

2. Overnight Bank Funding Rate (“OBFR”)

3. FOMC Target Rate

5. Replacement rate determined by issuer or its designee + Spread

 “Replacement Floating-Rate Spread” means, in respect of any interest reset date:

1. Spread recommended by Relevant Governmental Body.

2. ONLY if benchmark rate matches selected ISDA rate, then Spread in fallbacks for derivatives in ISDA 

definitions.

3. Spread determined by issuer or its designee.

Source: ARRC “A User’s Guide to SOFR” April 2019. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Users_Guide_to_SOFR.pdf

ARRC recommendations for More Robust Fallback language for New Issuance of LIBOR Floating Rate Notes and Syndicated loans, April 2019.

https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/FRN_Fallback_Language.pdf

https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Syndicated_Loan_Fallback_Language.pdf
20

Considerations for Cash Products referencing SOFR –

Compounding vs Simple Averaging

 While recent issuance has utilized a simple average methodology, there has been consideration for 

utilizing a compounded average approach for calculating SOFR interest over a term.

 For compounding:

 To provide economic equivalence with the interest applicable for a deposit held in a bank 

account for the same period and rolled daily in overnight markets.

 Aligns with established market practice for SOFR-referencing derivatives, including OIS market. 

This is preferable for hedging purposes.

 May reduced risk of international liquidity fragmentation as SONIA-referencing products 

generally use a compounded average approach.

 If the Fed publishes a compounded rate, that rate may be used as a reference across markets 

providing both consistency and reducing operational issues.

 For simple averaging:

 The formula is less complex and may be easier to include in interest calculation systems. This 

concern is reduced once the Fed publishes a compounded rate.

 Some degree of market familiarity with simple average given recent issuance utilizing this 

approach in US markets.

Source: ARRC “A User’s Guide to SOFR” April 2019. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Users_Guide_to_SOFR.pdf
21

Recap of Important Recent Speeches

 Financial Stability Board (FSB) letter to ISDA – March 12, 2019

 FSB provided feedback on the transition process while escalating/encouraging a consultation to add an 

additional trigger for derivatives. 

 The trigger being contemplated is one in which the regulatory authority (FCA in case of LIBOR) would 

decide that LIBOR is no longer a representative rate and should not be used for new contracts.

 The letter acknowledges that a critical benchmark could continue if its discontinuation creates disruption 

in existing contracts. However, if such a determination is made then EU supervised entities would not be 

able to use the benchmark for new derivative trades or securities.

 Michael Held (NY Fed) speech at SIFMA lunch – February 26, 2019

 Escalated that firms should be assessing potential vulnerabilities if LIBOR ceased to be published.

 Megan Butler (FCA) speech to Investment Association – February 21, 2019

 Escalated potential risk exposures for asset managers, including transition of derivatives as liquidity 

moves to risk free rates and ‘uncertainty premium’ impacting value of bonds linked to LIBOR.

 Edwin Schooling Latter (FCA) speech at ISDA Legal Forum – January 28, 2019

 Suggests that the end-game for LIBOR may be an assessment by the FCA that the rate is no longer 

representative, which should be considered in derivative (ISDA) fallbacks.

 Offers solution to address potential disruption in cash markets by allowing continued publication of 

LIBOR for use in legacy instruments which do not have mechanism to remove that dependency. This 

suggests regulators are differentiating between cash and derivatives in assessing risk.

Source: “FSB letter to ISDA about derivative contract robustness to risks of interest rate benchmark discontinuation”, March 2019 http://www.fsb.org/wp-content/uploads/P150319.pdf

“Michael Held: SOFR and the transition from LIBOR”, March 2019 https://www.bis.org/review/r190318f.pdf

“Ending reliance on LIBOR: Overview of progress made on transition to overnight risk-free rates and what remains to be done” Megan Butler, Feb 2019 

https://www.fca.org.uk/news/speeches/ending-reliance-libor-overview-progress-made-transition-overnight-risk-free-rates-and-what-remains

“LIBOR transition and contractual fallbacks” Edwin Schooling Latter, Jan 2019 https://www.fca.org.uk/news/speeches/libor-transition-and-contractual-fallbacks
22

Summary of ISDA Final Report on Benchmark Fallbacks 

Consultation (1 of 2)

 147 unique entities provided responses with overwhelming support for 2 of the 9 possible 

combinations for term adjustment and spread approach.

 The other possible approaches received support from only 7 or fewer respondents.

 The majority of respondents, 60% or 86 of 142, favored compounded setting in arrears with 

historical mean/median approach.

 The next most favored approach is the compounded setting in arrears with forward approach with 41 

votes of support (29%).

 Taking the term adjustment and spread approach separately, 90% of respondents preferred 

compounded setting in arrears for term adjustment and 70% preferred historical mean/median for 

spread adjustment.

 Noted benefits of historical mean/median approach include (i) it is robust and simple, (ii) it 

would reduce the potential for manipulation and (iii) resistant to market distortions.

 Respondents commented on valuation and operational complexities associated with the forward 

approach.

 In total, the responses most commonly represented bank/broker entities (38% of entities responded), 

pension funds (19%) and asset managers (13%).

 Although the historical mean/median was the preferred approach there were some concerns 

expressed regarding additional complexity introduced by the 1-year transition period as proposed by 

ISDA in the consultation (transitioning from current forwards to historical mean over the course of 1 

year).

Source: Anonymized Narrative Summary of Responses to the ISDA Consultation on Term Fixings and Spread Adjustment Methodologies, Dec 2018 

http://assets.isda.org/media/04d213b6/db0b0fd7-pdf/
23

Summary of ISDA Final Report on Benchmark Fallbacks 

Consultation (2 of 2) – Specification of historical mean/median 

approach

 The report notes that ISDA will continue to work with its independent advisors on the specification including 

performing sensitivity analysis on the range of potential parameters and expects to solicit additional 

feedback from market participants on a calculation method.

 Historical Mean/Median Approach:

 49% of respondents preferred the median while 19% preferred the mean. The report states that ISDA 

considers these percentages informative but not dispositive.

 One bank noted that the median provides greater certainty on the eventual outcome sooner which 

could increase the changes of successful adoption and a smooth transition process.

 A European pension fund preferred a trimmed mean to address the issue of potential outliers.

 In terms of the look back period, 50% of respondents selected a 5-year lookback, 20% selected 10-

year with the remaining selecting neither.

 One dealer suggested a dynamic lookback period that is unknown to the market in order to introduce 

additional uncertainty and encourage voluntary transition in advance of a fallback trigger.

 Another dealer suggested applying a time decay function (exponential weighting) to give more weight 

to recent periods.

 Others suggested a blend of longer and shorter lookback periods and setting a fixed starting date rather 

than a fixed-length window.

 The majority of respondents (78%) preferred using the same methodology across all benchmarks. 

Operational concerns were cited as the major reason for supporting a consistent methodology (cross 

currency swaps etc).

 Other concerns regarding the fallback include the pricing of FRAs for a compounded in arrears term rate as 

well as the fact that the alternative rates are generally not known until T+1 and payments would need to be 

delayed to account for the day lag.

Source: Anonymized Narrative Summary of Responses to the ISDA Consultation on Term Fixings and Spread Adjustment Methodologies, Dec 2018 

http://assets.isda.org/media/04d213b6/db0b0fd7-pdf/
24

Agency Issuance By Benchmark

Source: Bloomberg
25

SOFR Issuance By Issuer Type

Source: Bloomberg

Source: Bloomberg
STRICTLY PRIV

April 30, 2019Fixed vs. Floating Rate Treasury Securities
Charge question

 Please comment on the optimal funding mix of fixed versus floating rate securities including the primary r

consider.

April 30, 2019

1
Executive summary

 FRNs are attractive to a broad set of investors and allow the Treasury to diversify its investor base

 Treasury auction statistics show stronger end user demand for this product than Treasury bills; FRNs a

attractively relative to 2-year nominal Treasuries on an asset swap basis

 In considering the optimal funding mix of floating rate versus fixed rate debt, we highlight recent work by T

optimization

 Across a broad set of inputs/assumptions, TBAC’s debt optimization model generally highlights a favo

tradeoff from reducing the allocation to variable rate debt (bills and FRNs) and increasing the alloshort/intermediate fixed rate debt; in large part, this reflects the current negative term premium in the y

 Beyond the debt optimization model, we also note that Treasury’s allocation to variable rate debt is qu

all other DM issuers

 We also consider the optimal funding mix between bills and FRNs comparing the tradeoffs between the h

the reduced rollover risk compared to bills; while this work highlights the benefits of FRNs, on balance, it support increased issuance at the current time. Instead, for a broad range of risk parameters, the and intermediates as better tools to reduce rollover risk

 In assessing the optimal funding mix between bills and FRNs, we improve on our existing debt optimiz

introducing a measure of rollover risk into the model

 With no constraints on rollover risk, the model generally favors bills over FRNs reflecting the higher co

risk constraints are tightened to moderate levels, the model generally finds TIPS and short/intermediatattractive way to reduce rollover risk than FRNs 

 At high enough levels of risk aversion, however, the optimal debt mix does include a significant allocat

cases moreover, the cost/risk tradeoffs highlight benefits to lengthening the maturity of FRNs to as lon

 The improvements to our model highlight some important shortcomings of WAM as a measure of rollover 

operational risks of debt rollover, we recommend Treasury rely more heavily on expected rollover as 

than WAM

2
Agenda

1 Overview of Treasury FRN Market 2 Optimal mix of Fixed rate vs. Variable rate securities 3 Optimizing the cost, risk, rollover trade-off 

Appendix: 
Overview of Treasury FRN market Treasury first introduced a 2-year FRN in January 2014 with coupons indexed to the 3-month bill

 The interest rate is set daily based on the most recently auctioned 3-month bill plus a spread (d

set at the initial FRN auction

 Current issuance of FRNs totals $56 bn per quarter ($20 bn new issue plus two $18 bn monthly re

compares to $120 bn quarterly issuance of 2-year notes

 Total outstanding FRNs has grown to $400 bn representing 2.5% of total marketable debt and 14

(Bills and FRNs) debt

 FRNs are much less actively traded in the secondary market than other Treasury securities; daily 

$3 bn/day or 0.9% of outstanding debt

FRN debt outstanding as % of total and variable rate debt; % Average daily volume by security type

Source: US Treasury Source: FRBNY

02468101214161820

0.00.51.01.52.02.5

12/13 12/14 12/15 12/16 12/17 12/18

← % of marketable debt

% of variable debt →

3
2018 Depository institutions Individuals Dealers and brokers

Pension and 

Retirement 

funds and 

Ins. Co.

Investment 

funds

Foreign and 

international Other

Bills 0.1% 1.9% 60.1% 0.1% 30.5% 7.2% 0.2%FRNs 0.4% 0.1% 49.7% 0.4% 27.0% 9.1% 13.3%Nominals 0.0% 0.3% 34.9% 0.1% 49.2% 14.9% 0.5%TIPS 0.0% 0.2% 20.1% 0.3% 62.2% 17.1% 0.0%Total 0.1% 1.5% 54.1% 0.1% 34.7% 9.0% 0.5%

2014-2019 

avg

Depository 

institutions Individuals Dealers and brokers

Pension and 

Retirement 

funds and 

Ins. Co.

Investment 

funds

Foreign and 

international Other

Bills 0.2% 1.5% 64.7% 0.2% 24.4% 8.7% 0.3%FRNs 0.5% 0.1% 52.8% 0.2% 19.7% 15.6% 11.2%Nominals 0.2% 0.2% 35.5% 0.1% 47.0% 16.5% 0.5%TIPS 0.0% 0.2% 25.5% 0.6% 58.5% 15.1% 0.2%Total 0.2% 1.2% 57.3% 0.2% 29.9% 10.7% 0.5%

Investor demand for FRNs

 Auction stats for FRNs suggest a similar investor profile to Treasury bills with slightly stronger en

FRNs than bills

 Investment fund demand for FRNs has grown as short term rates have normalized increasing fro

2014-2015 to 27% in 2018 and 37% in 2019

 Significant participation in FRN auctions by non-traditional (“other”) investors; may reflect use of 

FCMs as investments held against cash collateral for derivatives margining

 Bid to cover ratios for FRNs are similar to bills and generally higher than 2-year notes

Treasury auction demand statistics

Bid-to-cover ratios for 2-year month T-bill, 6-month moving 

Source: US Treasury

4
Government debt outstanding by security type as of 12/18; %

Global comparisons

*2019 Guidelines for public debt management, Dipartimento del Tesoro 

 FRNs have been issued by Italy, Japan, and the US  Italy issues 6-year FRNs indexed to 6-month EURIBOR; the Italian Treasury expects to issue two new be

2019 with a maturity in the 5-to-7-year range*; Japan had a 15-year FRN program indexed to the 10-year discontinued in 2008.

 US debt outstanding is more heavily weighted to variable rate debt (17.5%) than international peers; the h

results in the US having the lowest WAM and highest 2019 redemptions as a % of outstanding debt comp

5
Bills and total variable rate debt as a % of marketable debtVariable rate debt outstanding as a % of marketable debt

 The proportion of outstanding debt that is variable rate has increased recently but remains below its long 

101520253035

1995 2001 2007 2013 2019

Total variable rate debtBills

Source: US Treasury

6
Pricing of FRNs

 Both FRNs and 2-year Treasury asset swaps (synthetic FRN) have traded cheap to Treasury bills reflecti

required by investors to provide term funding to Treasury FRNs have averaged 10 bp cheap to bills and 2 bp rich to 2-year Treasury asset swaps Spreads are derived from the Libor/bill basis market; some caution is warranted in interpreting these sp

in this market

 The term structure of FRN spreads is similar to nominal Treasury asset swap spreads with the nominal as

slightly steeper than FRNs

1. 2-year Treasury asset swap converted to spread to 3-month bills using Libor/bill basis market

2-year FRN discount margin vs. 2-year UST asset swaps1; 

spread to bills; bp

Term structure of FRN and Treasury aspread to bills; bp

-5

05

101520253035

12/14 12/15 12/16 12/17 12/18

FRN discount margin

2yr ASW

7
Agenda

1 Overview of Treasury FRN Market 2 Optimal mix of Fixed rate vs. Variable rate securities 3 Optimizing the cost, risk, rollover trade-off 

Appendix: 
Choosing between fixed and floating rate Treasury securities

In optimizing the funding mix between fixed-rate Treasury securities and FRNs, it is useful for Treasury to sedecisions: An interest rate risk decision that involves determining the optimal funding mix between fixed and varia

including FRNs and Treasury Bills  Primarily involves assessing tradeoffs between cost and volatility of alternative funding strategies Recent modelling of debt optimization by TBAC provides useful insights on these tradeoffs

 An operational risk / rollover risk assessment across variable rate funding alternatives that involves de

of bills and FRNs Primarily involves assessing the tradeoff between the higher cost of FRNs, and the benefit to the Treas

rollover risk of FRNs vs. bills

 Rollover risk in this context primarily reflects the operational risk of large auctions and/or the risk of larg

associated with large auctions; it is also correlated with the volatility of debt servicing costs which is onwe consider in our work on optimization

 The work below improves on TBAC’s earlier work on debt optimization by explicitly introducing a rollov

to assess the optimal mix of bills and FRNs

 Other considerations in choosing an optimal bill/FRN mix that we don’t incorporate into the model inclu

stability risks from greater bill supply that reduces the private sector’s need to create “near money” (seand Stein, “A Comparative-Advantage Approach to Government Debt Maturities,” The Journal of Finan

8
Insights from debt optimization on optimal fixed/floating funding mix

Previous work by TBAC on debt optimization provides a number of useful insights around the optimal mix of 

rate funding. By way of review, the model developed by TBAC contains a number of key components includ

 A simulation module consisting of:

 A macroeconomic model for the unemployment gap, core PCE inflation, CPI, the Fed Funds target rate

real GDP, the potential rate of change of real GDP, and the equilibrium real rate of interest

 A model for the Treasury yield curve using expected Fed policy and term premium A model for the TIPS yield curve, which involves a decomposition of term premium into inflation, real ra

components

 A fiscal model for the primary budget deficit

 A debt dynamics module that projects current and future debt issuance An optimization module that identifies low cost strategies given risk appetite and constraints and can gen

optimization (issuance fractions never change) and dynamic optimization solutions where issuance depen

9
Optimal funding mix between fixed and variable rate (including bills) secu

 Previous work on debt optimization highlights that the optimal amount of floating rate debt depends on both the deg

debt manager and whether risk is better measured by the volatility of debt servicing costs or the volatility of deficits When risk is measured by the volatility of debt servicing costs, increased allocation to bills at the expense of 2-, 3

notes is not especially attractive as it generates only modest cost savings with significant increases in risk

 When risk is measured by the volatility of deficits, a heavier allocation to floating rate debt is appropriate as the s

correlation between rates and the primary deficit

Debt cost / variability tradeoff under alternative issuance strategies

Debt cost / variability tradeoff under astrategies

Source: Belton, Dawsey, Greenlaw, Li, Ramaswamy, and Sack, “Optimizing the maturity structure of U.S. Treasury debt: A model-based framework”, The Hutchi

Policy, Brookings Institution (October 2018). https://www.brookings.edu/research/optimizing-the-maturity-structure-of-u-s-treasury-debt/

10
The model’s optimal allocation to variable rate debt has generally favored rate issuance and more issuance in intermediates than historical patterns

 The model’s optimal issuance varies over time but has generally favored larger issuance at intermediate maturities 

bills/FRNs relative to actual Treasury issuance

 The difference between the model and actual issuance patterns has been most pronounced in recent years as the 

premium and low front end rates implies significant benefit from reducing bill and FRN issuance in favor of intermed

Optimal issuance mix Actual historical issuance mix1 1 Optimal - Actual 

1. Bill issuance across varying tenors are all scaled to 1-year (52-week) tenor; i.e. 100B of 26-week Bills scales to $50B of 1-year equivalent billsSource: TBAC and Belton, Dawsey, Greenlaw, Li, Ramaswamy, and Sack, “Optimizing the maturity structure of U.S. Treasury debt: A model-based framework”, T

Monetary Policy, Brookings Institution (October 2018). https://www.brookings.edu/research/optimizing-the-maturity-structure-of-u-s-treasury-debt/

0%

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

100%

2006

2008

2010

2012

2014

2016

2018

Bills

2

3

5

7 10 30

0%

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

100%

2006

2008

2010

2012

2014

2016

2018

Bills

2

3

5

7 10 30

-50%-40%-30%-20%-10%

0%

10%20%30%40%50%

2006

2008

Bills

2

11
Term premium and the level of real yields have a large influence on the ofixed and floating rate debt

 Increases in term premium and/or real front end rates can imply significant benefits to increasing variable rate issua

fixed rate debt The Chart below shows the sensitivity of the optimal funding mix relative to our baseline optimization from a one 

the macro variables; the sensitivities shown are in $bn of annual issuance and reflect zero sum reallocations acr

 A one sigma increase in 10-year term premium (equal to 80 bp) implies a $25 bn reallocation from coupons to fl

sigma increase in real 2-year rates (equal to 190 bp) implies an even larger reallocation from fixed to floating rate 

 The normalization of term premium and real 2-year rates to their steady state levels over time would be expected to 

proportion of variable rate debt issuance to ~40%; however, even in this more normalized macro environment, the allocation to variable rate debt than what the Treasury is currently issuing (~50% floating; see prior slide)

Optimal response of issuance to changes in the macroeconomic variables; $bn

Optimal issuance under static and dyfunction

Source: TBAC and Belton, Dawsey, Greenlaw, Li, Ramaswamy, and Sack, “Optimizing the maturity structure of U.S. Treasury debt: A model-based framework”, T

Monetary Policy, Brookings Institution (October 2018)

-40-30-20-10

0

1020304050

Issuance in Bills Issuance in Belly

(2s,3s,5s)

Issuance in Longend (7s,10s,30s)

Real 2yr Term premium Deficit

12
Agenda

1 Overview of Treasury FRN Market 2 Optimal mix of Fixed rate vs. Variable rate securities 3 Optimizing the cost, risk, rollover trade-off 

Appendix: 
Term Premium Decomposition 

We extend the TBAC model to include funding risk premium, the compensation for term funding 

 In previous work1,2 we decomposed Treasury yields into two components, the first accounting for interest rate ex

a risk premium required by investors. The risk premium component varies with maturity and is referred to as the 

 We decomposed Nominal and Real TPs into real (RRP), inflation (IRP), and liquidity (LRP) components, and est

LRP historically using an affine term structure model fit to excess returns, yields, and a TIPS liquidity index. 

 Here we recognize that investors also require a risk premium for providing term funding (FRP), and as shown on 

increasing function of maturity. We use the spread of 2-year FRNs over T-bills to approximate the 2-year FRP, a

Nominal asset swap spreads to T-bills to project the FRP for maturities longer than 2-year. 

 We update the model to include the FRP as an additional component of the term premium for all Treasury secur

Nominal, TIPS, and FRN risk premia as

ܴܲܫ ൅ ܴܴܲ ൅ ܴܲܨ ൌ௢௠௜௡௔௟ ேܶܲ

ܴܲܮ ൅ ܴܴܲ ൅ ܴܲܨ ൌ௘௔௟ ோܶܲ

ܶܲிோே ൌ ܨܴܲ

 Following our previous work1,2, in the simulation module, for each maturity we model the Nominal TP as an affine 

unemployment gap, the IRP as an affine function of the spread of expected real rates over ݎ௧∗, and the TIPS LRP 

historical average. However, we now include the FRP, as an additional constant equal to the historical average. 

 We define the RRP in our simulation block to be TP – IRP – LRP – FRP. In the table below you can see the stea

decomposition used in the simulation.

13

[1] https://home.treasury.gov/system/files/276/TBACCharge14thqtr2018.pdf[2] Belton, Dawsey, Greenlaw, Li, Ramaswamy, and Sack, “Optimizing the maturity structure of U.S. Treasury debt: A m

The Hutchings Center on Fiscal and Monetary Policy, Brookings Institution (October 2018). https://www.brookings.edu/r

maturity-structure-of-u-s-treasury-debt/

Source: TBAC
Single Security Issuance Results Including FRNs 

Results show average debt service cost in year 20 vs two different measures of risk

 The scatterplots below compare average debt service cost as a fraction of GDP to the standard deviation of d

deficits (right) at year 20 (computed over 2000 simulated paths). Cash needs are met every quarter entirely by security. We include a 2-year FRN and a hypothetical 5-year FRN.

• FRNs have slightly higher costs than Bills due to their FRP, and as a result of their increased funding requirem

a slightly higher risk to Bills under both metrics.

• FRNs lie well within the suboptimal portion of the cost / interest rate risk feasible region.

A

A

B

B 

Source: TBAC

Source: TBAC

Source: TBAC

14

2yF 5yF Bill 2yN 3yN 5yN 7yN 10yN 30yN 5yT 

Average issuance rate 3.24 3.09 2.99 2.96 3.02 3.15 3.29 3.44 4.01 1.0

 

Average debt service/GDP 2.80 2.62 2.49 2.46 2.55 2.75 2.97 3.21 4.00 2.5

 

Standard deviation debt 

service/GDP 1.73 1.70 1.67 1.41 1.13 0.72 0.71 0.82 1.10 1.7

 

Standard deviation total 

deficit(%GDP) 2.37 2.35 2.34 2.15 2.09 2.11 2.11 2.14 2.29 2.4

 

Correlation funding cost, 

primary deficit (%GDP) (0.14) (0.15) (0.15) (0.18) (0.11) 0.14 0.13 0.11 0.10 

(0.1
Source: Belton et al.

Issuance Kernels and Static Optimization ResultsStatic optimization over Nominal, TIPS, and FRN kernels results in no FRN allocation

 We introduce a kernel to switch out of Bills into 2-year FRNs, 

and run a static optimization.

 The optimal solution does not place any weight on 2-year 

FRNs.

 Similar analysis allowing switching out of Bills into 5-year 

FRN also results in no weight on the 5-year FRN.

Source: TBAC

15

Source: TBAC
Introducing RolloverTreasury refinancing as a fraction of GDP

 Below left we show the maturity distribution of the Q2 2018 stock of Treasury debt, expressed as a percentage of GDP. We measure rollover as 1-year principal redemptions (excluding Bills) plus Bills outstanding, and normalize it as a fract

normalized rollover is simply the first bar in the graph below left. The concept of controlling rollover primarily reflects the auctions and/or the risk of large supply concessions associated with large auctions. Rollover is also correlated with the costs which is one of the risk measures we consider in our work on optimization.

 The choice of GDP as denominator allows for natural growth of the debt stock (and the resulting principal redemption) w

refinancing in the context of domestic economic activity in total. 

 An alternative choice of denominator is the size of the existing debt stock. We chose not to use this definition after con

which economic conditions require fiscal stimulus, but the existing debt stock is small compared to GDP. In these statelarge compared to the existing debt stock could be easily absorbed, but would result in a high rollover value. In our simnot differ greatly, as debt-to-GDP is fairly stable. 

 At lower right we show how Treasury’s annual rollover has evolved over time.

Source: Treasury, TBAC Source: Treasury, TBAC

16

A

A
Source: TBAC

Source: Treasury, TBAC

Adding a Rollover / GDP Penalty to the OptimizationPenalizing rollover / GDP above a threshold effectively controls rollover but increases cost 

 We add a new term to the objective function which penalizes outcomes above a certain threshold of rollover/GDP  We re-run our static optimizations with and without a rollover threshold (set to 10%), using hypothetical 5-year FR

resulting maturity distributions averaged across paths at year 20 of our simulation, comparing them to the existin

 Introducing a rollover penalty shifts the efficient frontier up in cost. The red shaded segment of the frontier indica

included.

Source: TBAC

17

A

Source: TBAC

A

A

B

B

R
Results For 2-year FRNs Including a Rollover Threshold 

With a rollover / GDP threshold penalty, the model favors intermediate issues and TIPS over Bills 

With no rollover / GDP penalty, Bills and belly are a large fraction of the optimal debt stock at all but highest risk aversion

Penalizing rollover / GDP > 10%, alloBills for low risk aversion, while Notes risk aversion

RiskAversion

Source: TBAC

Nominals have the lowest stand alone and TIPS, provide a diversification ben

A

B 

Source: TBAC Source: TBAC

Intermediate maturities exhibit an attractive rollover / cost tradeoff

Source: TBAC

18
Results for 5-year FRNs With a 10% Rollover / GDP Threshold Penalty5-year FRNs are preferred to 2-year FRNs, but fixed is preferred to floating at current levels of te

 For high risk aversion the model allocates 60% / 20% / 20% between longer 

maturity Nominals / 5-year FRNs / TIPS.

 Following our previous work1,2, we examine the effect of including 5-year

FRNs and a rollover threshold in a dynamic debt optimization model.

 In the upper right chart, we see that dynamic issuance lowers the efficient 

frontier considerably (middle line) compared to the static case with the same rollover threshold (top line).

 We back-test the optimal response function using historical levels of 10-year

Term Premium and 10-year Inflation Risk Premium. It shows that the current environment does not favor issuance of FRNs, since low Term Premium advantages intermediate Nominals at their expense.

Source: TBAC

19

A

RiskAversion

Source: TBAC

A

B

B

C

[1] https://home.treasury.gov/system/files/276/TBACCharge14thqtr2018.pdf[2] Belton, Dawsey, Greenlaw, Li, Ramaswamy, and Sack, “Optimizing the maturity structure of U.S. Treasury debt: A m

The Hutchings Center on Fiscal and Monetary Policy, Brookings Institution (October 2018). https://www.brookings.edu/r

maturity-structure-of-u-s-treasury-debt/
Optimizing the Trade-Off Between Cost, Risk, and RolloverComparison between model outputs and historical issuance

Historical issuance show much more wethan what is favored by the model

A threshold of 20% of GDP constrains rollover to be close to current levels, and risk aversion of 2 lies close to the unconstrained frontierWeights along the 20% rollover threshold efficient frontier highlight the allocation to 2-year FRNs at left, and to TIPS at right.

With risk aversion of 2, 2-year FRNs rerollover thresholds bring in 10-year No

Source: TBAC

RiskAversion

Source: TBAC

Source: TBAC

Source: TBAC

20

A

A

B

B

B

C

C
Source: TBAC

Minimum Issuance Size ConstraintsMinimum issuance constraints do not alter the model’s preferred allocations significantly

The constrained rollover distribution is ceand its 99th percentile is considerably low

Constraining issuance weights to be no less than half of 2018 weights in any security shifts the frontier upAllocations on the constrained frontier continue to favor intermediates and TIPS

The rollover threshold remains most cowhen minimum issuance constraints a

Source: TBAC Source: TBAC

RiskAversion

Source: TBAC 21

A

A
Comparing WAM Targeting to Rollover Targeting 

Targeting WAM leads to high rollover strategies

We introduce a WAM target of 5.8 years into our objective function and re-optimize (see appendix for details).

Optimization with a WAM target generically results in a barbell strategy of Bills versus Bonds and 30-year TIPS

Optimization with a rollover target chooses instruments, and FRNs only for high lev

The Bills / Bonds barbell has lower average cost than a rollover -minimizing single security issuance pattern

Rollover 10%

Rollover 70%

RiskAversion

Source: TBAC

Source: TBAC

Source: TBAC

Distributions for 2000 simulated paths show versus rollover targeting. WAM targeting le

Source: TBAC

22

A

A

B

B

C
Limitations 

 This work represents one model with results that depend critically on model assumptions

recommendations off of one model, but instead takes into account a wide range of inputs and market pricing.

 Results depend critically on the choice of risk measure (standard deviation of deficit versu

on the model implied cross correlations between interest rates, inflation, and primary defic

 Results depend heavily on the ex-ante assessment of term premium and its decompositio

inflation, liquidity, and real risk premia.

 Results depend on specific choice of issuance kernels. Results would also be sensitive to supply effects, which are not modeled in this presentat The model assumes the debt manager’s utility function is of a specific form, which may no

world considerations, e.g., the maintenance of minimum issue sizes to foster liquidity. Alsoheavily on debt manager aversion to interest rate and rollover risk. 

23
Agenda

1 Overview of Treasury FRN Market 2 Optimal mix of Fixed rate vs. Variable rate securities 3 Optimizing the cost, risk, rollover trade-off 

Appendix: 
 Consider a hypothetical issuance split 50% : 

50% between 1-year Bills and 10-year Notes. 

 In steady state, 100% of the outstanding stock 

of Bills turns over every year, but only 10% of the stock of 10-year Notes would be redeemed.

 The 50% : 50% issuance split leads to a 9% : 

91% Bills / Notes steady state distribution.

 The weighted average maturity of the steady 

state debt distribution is 4.6 years, which is more than 1⁄2 the WAM of a 1-year + the WAM 

of a 10-year (2.75 years).

Maturity Weighted IssuanceWe focus on maturity weighted issuance because it aligns more closely with steady state portfoli

A

B

 Suppose Treasury can issue securities with maturities ߬ଵ,...,߬ெ . Denote by ݓ ௠the fraction of each yea

maturity with ∑ ݓ ௠ெ௠ୀଵ ൌ 1. 

 Assume that quarterly issuance is a constant one unit, and that the issuance fractions never change. Th

total amount of outstanding debt which is an original-issue ߬௠- maturity security is simply ߬௠ݓ௠, becaus

ݓ ௠of debt issued to mature. The total stock of debt is simply ܦ ൌ ∑ ߬௠ݓ ௠ெ௠ୀଵ . 

 We can define the steady-state debt stock fractions 

௠ݏ

̅

ൌ

௠ݓ௠߬

∑ ߬௡ݓ ௡ெ௡ୀଵ ,

which also sum to 1. The relationship can also be inverted: given a desired set of ݏ௠̅ , the required yearly 

ൌ௠ ݓ

௠ݏ

̅ /߬௠

∑ ݏ௡̅ /߬ ௡ெ௡ୀଵ .

 Given these elements, the weighted average maturity (WAM), measured mid-year, of the steady-state de

as ܹ

ഥ

ൌ

ଵଶ ∑ ݏ௠̅ ߬ ௠ெ௠ୀଵ . 

 In the steady state, the annual principal redemption as a fraction of the debt stock can be computed as ࣬

Original Issue 10

Original Issue 1Y Bills

A

Source: TBAC

24
Rollover and WAM Targets 

 We define normalized rollover as the annualized principal redemption ܴ௧,௣ in the simulation at each time on each path, a

൘ ௣,௧ܲܦܩ ௣,௧ܴ ∗ 	100 ൌ௣ ,௧ݎ݁ݒ݋݈݈݋ݎ

 To target normalized rollover, we augment the objective function with a penalty term given by

	η	

1

ଶ ା ݈݀݋݄ݏ݁ݎ݄ݐ െ௣ 	,௧ݎ݁ݒ݋݈݈݋ݎ ෍ ܶܲ

௧,௣

,	

where η is a new risk aversion parameter which we set equal to 0.05

 Using the formulae from the previous slide, the steady-state weighted average maturity (WAM) of the securities issued a

is defined as

ܹ

ഥ

௧,௣ ൌ

1

௠߬ ̅ ௣,௧,௠ݏ ෍ 2

ெ

௠ୀଵ

ൌ

12

∑ ݓ௠,௧,௣߬௠ ெ ଶ ௠ୀଵ

∑ ݓ௡,௧,௣߬௡ ெ௡ୀଵ

where ݓ௠,௧,௣ is the issuance fraction of security ݉ at time ݐ on path ݌ , ߬ ௠is the time to maturity of security ݉, and the s

securities.

 To target WAM, we augment the objective function with a penalty term given by

1

ଶ ݐ݃݁ݎܽݐ െ௣ 	,ഥ௧ܹ ෍ ܶܲ

௧,௣

.

25
Source: TBAC

WAM Versus Rollover In More Detail

 To give further intuition for the difference between WAM targeting and rollover targeting, suppose we want to create a stoc

principal of $100, and a desired WAM target of 5 years. We will ignore interest payments for clarity of exposition.

 One way to achieve our goal is to issue $10 each of 1-, 2-, ..., 10-year Notes. The WAM of the outstanding debt is 5 years

stock matures and can be replaced by issuing $10 worth of new 10-year Notes. This is a steady-state debt distribution, sirefinanced every year, exactly the same way.

 Another way to achieve our goal is to issue 98.522% Bills and 1.478% Bonds every year, starting with $100 in year one. A

debt distribution consists of $68.96 Bills and $31.04 original-issue Bonds, maturing annually out to 30 years. Each year, 1

Bonds, as well as the $68.96 worth of Bills, must be refinanced, for a total of almost 70% of the debt stock. This is also a 

 For the given WAM goal, the first distribution has minimal rollover (10%), and the second strategy has maximal rollover (7 However, the first distribution is more costly. The average cost in our model is 3.44% (the average 10-year note yield), wh

second strategy is

(0.6896 * 2.91% + 0.3104 * 4.01%) = 3.25%

due to the preponderance of Bills and the fact that the yield curve is (in expectation) concave. 

 Therefore, an optimization which minimizes cost subject to a WAM target will choose the barbell distribution.

Rollover 10%

Rollover 70%

Source: TBAC

26
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