Treasury Presentation to TB
Office of Debt Manageme

Fiscal Year 2020 Q3 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 Q3 FY2020

• Through Q3 FY2020, overall receipts totaled $2,260 billion, reflecting a decrease of $351 billion (13%) on a cal

compared to the same period last year due largely to the extension of tax deadlines until July. Decreases in n

SECA taxes of $313 billion (-54%) due to tax extensions, gross corporate taxes of $77 billion (-38%) due to tax 

reduced liabilities stemming from law changes and the economic impact of COVID-19, and excise taxes of $2the fact that Health Insurance Provider fees paid in October 2018 were on moratorium in calendar year 2019 

increases in Federal Reserve earnings of $15 billion (38%) and adjusted withheld and FICA taxes of $12 billiogrowth that occurred before April 2020. FYTD 2020 receipts were 14.6% of GDP, compared to 16.4% of GDP iyear. 

• Through Q3 FY2020, overall outlays were $5,004 billion, reflecting an increase of $1,648 billion (49%) over the 

year. Small Business Administration outlays are $537 billion higher due to subsidy estimates for the Paychec(PPP) and spending for the Economic Injury Disaster Loan (EIDL) program. Treasury outlays were $426 billi

due to Economic Impact stimulus payments and payments to the Coronavirus Relief Fund & Air Carrier Wostemming from the COVID-19 outbreak. Department of Labor outlays were $252 billion higher due to increaattributable to the COVID-19 outbreak. Health and Human Services spending was $226 billion (25%) higher payments for hospitals as well as advance payments to fee for service Medicare providers, due to the COVID

overall increases to Medicare and Medicaid. FYTD outlays were 32.3% of GDP, compared to 21.1% of GDP foyear.

Projected Net Marketable Borrowing (FY2020) 

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

FY2020, with an end-of-September cash balance of $800 billion. For Q1 FY2021, OFP forecasts a net privately-

borrowing need of $1,216 billion assuming end-of-December cash balance of $800 billion. The aforementione

assumption of $1,000 billion in additional stimulus. Privately-held marketable borrowing excludes rollovers Treasury securities held in the Federal Reserve’s System Open Market Account (SOMA) but includes financinSOMA redemptions. Secondary market purchases of Treasury securities by SOMA do not directly change ne

marketable borrowing but, all else equal, when the securities mature and assuming the Fed does not redeem would increase the amount of cash raised for a given privately-held auction size by increasing the SOMA “ad

Demand for Treasury Securities

• Bid-to-cover ratios for all securities were typically within historical ranges over the last quarter. 

• High demand for Treasury bills with about $2.4 trillion of net issuance from 3/31/2020 through 6/30/2020. 

• Foreign demand increased.

Highlights of Treasury’s August 2020 Quarterly Refunding P

to the Treasury Borrowing Advisory Committee (TBA
Section II:

Fiscal
Quarterly tax receipts for Q3 FY2020 reflect adjustment of April and June 2020 tax deadlines to July 15th, 2020.

Source: United States Department of the Treasury

(100%)

(80%)(60%)(40%)(20%)

0%

20%40%60%

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

Mar19

Year-over-Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl F
Quarterly tax receipts for Q3 FY2020 reflect adjustment of April and June 2020 tax deadlines to July 15th, 2020. Individual In

withheld and non-withheld. Social Insurance Taxes include FICA, SECA, RRTA, UTF deposits, FUTA and RUIA. Other incestate and gift taxes, customs duties and miscellaneous receipts. Source: United States Department of the Treasury 

0

20406080

100120140160

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

$ 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

200400600800

1,0001,200

HHS

Treasury

SSA

Defense

Labor

VA

Education

Agriculture

OPM

Transportation

Other Defense Civil

$ bn

Largest Outlays

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

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

0

102030

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

Q2-19

$ bn

Fiscal Quarter

Treasury Net Privately-Held Nonmarketable Borrowing

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

0

500

1,0001,5002,0002,5003,000

October

November

December

January

February

March

April

May

June

July

A

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2018 FY2019 FY2020
Primary Dealers1 OFP

FY2020 Deficit Estimate 3,950 FY2021 Deficit Estimate 2,500 FY2022 Deficit Estimate 1,500FY2020 Deficit Estimate Range 2,950-5,000FY2021 Deficit Estimate Range 1,965-3,500FY2022 Deficit Estimate Range 1,100-2,500FY2020 Privately-Held Net Marketable Borrowing Estimate 4,250 4,50FY2021 Privately-Held Net Marketable Borrowing Estimate 2,213FY2022 Privately-Held Net Marketable Borrowing Estimate 1,500FY2020 Privately-Held Net Marketable Borrowing Range 3,120-5,600FY2021 Privately-Held Net Marketable Borrowing Range 1,500-3,500FY2022 Privately-Held Net Marketable Borrowing Range 700-2,500FY2020 Ending Cash Balance 1,200 800FY2020 Ending Cash Balance Range 731 - 1,600Estimates as of: Jul-20 Aug-FY 2020-2022 Deficits and Privately-Held Net Marketable Borrowing Estimates, in $ b

3CBO FY2020 and FY2021 deficit estimates are from CBO’s blog “CBO’s Current Projections of Output, Employment, 

and a Preliminary Look at Federal Deficits for 2020 and 2021,” April 24, 2020 @ https://www.cbo.gov/publication/5

1Estimates represent the medians from the primary dealer survey in July 2020. FY2020 primary dealer borrowing esti

$3,825 billion if normalized for $800 billion cash balance.

2Treasury's Office of Fiscal Projections (OFP) borrowing estimates announced on August 3, 2020. Estimates reflect OF

$1,000 billion in additional stimulus.
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)
* 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. For FY2020 and FY2021, estimates reflecof $1,000 billion in additional stimulus.

Privately-Held Net Marketable Borrowing Outlook*

$0

$500

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

Q1 Q2 Q3 Q4

$ bn

FY17 FY18 FY19 FY20 FY20 (projection-OFP)
Section III:

Financing
Assumptions for Financing Section (pages 16 to 21)

• Portfolio and SOMA holdings as of 06/30/2020.• Estimates assume private announced issuance sizes and patterns remain constant for nomin

TIPS, and FRNs given changes made before the August 2020 refunding, while using total bioutstanding of ~$5.08 trillion. 

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

as of 06/30/2020.

• 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-June 2020 cash balance of $1,722 billion versus a beginning-of-April 2020 cash balance of $515 billion. By keeping 

constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance 2422 Security Gross Maturing Net Gross Maturing 

Net Coupon Issuance 331 4-Week 1,020 970 50 2,280 2,223 

Subtotal: Net Marketable Borrowing 2753 8-Week 855 685 170 1,935 1,700 

13-Week 768 558 210 1,908 1,653 

Ending Cash Balance 1722 26-Week 660 453 207 1,668 1,419 

Beginning Cash Balance 515 52-Week 93 38 55 279 212 

Subtotal: Change in Cash Balance 1207 CMBs

6-Week 870 525 345 870 525 

Net Implied Funding for FY20 Q3 1546 15-Week 485 0 485 485 0 

17-Week 460 0 460 460 0 22-Week 480 0 480 480 0 39-Week 70 0 70 70 0 Other 125 235 (110) 290 290 

Bill Subtotal 5,886 3,464 2,422 10,725 8,022 

Security Gross Maturing Net Gross Maturing 

2-Year FRN 62 49 13 174 135 

2-Year 132 94 38 372 227 3-Year 126 70 56 354 214 5-Year 135 101 34 381 336 7-Year 114 61 53 306 179 

10-Year 86 31 55 236 111 20-Year 37 0 37 37 0 30-Year 58 2 56 160 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 794 463 331 2,142 1,284 

Total 6,680 3,927 2,753 12,867 9,307 

April to June 2020 Fiscal Year-to-Da

Coupon Issuance Coupon Issuanc

Sources of Privately-Held Financing in FY20 Q3*^

April to June 2020 April to June 2020 Fiscal Year-to-Da

Bill Issuance Bill Issuance
* 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 Augus

*** Assumes an end-of-September 2020 cash balance of $800 billion versus a beginning-of-July 2020 cash balance of $1,722 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.

Assuming Constant Coupon Issuance Sizes**

Treasury Announced Net Marketable Borrowing*** 947

Net Coupon Issuance 447

Implied Change in Bills 500

Security Gross Maturing^ Net Gross Maturing 

2-Year FRN 68 52 16 242 187 

2-Year 144 93 51 516 321 3-Year 138 56 82 492 270 5-Year 147 90 57 528 426 7-Year 132 60 72 438 239 

10-Year 90 30 60 326 141 20-Year 54 0 54 91 0 30-Year 60 5 55 220 10 

5-Year TIPS 0 0 0 64 55 

10-Year TIPS 26 33 (7) 76 54 

30-Year TIPS 7 0 7 15 0 

Coupon Subtotal 866 419 447 3,008 1,703 

Coupon Issuance Coupon Issuan

Sources of Privately-Held Financing in FY20 Q4*

July - September 2020

July - September 2020 Fiscal Year-to-D
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 January economic assumption of the 10-Year Treasury note year average from Table B-2 of CBO’s “The Budget and Economic Outlook: 2020 to 2030,” January 2020. CBO’s July eco

10-Year Treasury note rates reflect projections for 2020, 2021, 2022, and averages for the periods 2023-24 and 2025-30. Th

implied 10-Year Treasury note rates on June 30, 2020. *Both OMB and CBO projections from January and February reflect pre-CARES Act forecasts and will be updated wbecome available.

0.40.91.41.92.42.93.4

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

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 06/30/2020CBO's "An Update to the Economic Outlook: 2020 to 2030" (July 2020)

10-Year Treasury Rate of 0.657% as of 06/30/2020

CBO estimates 2.6%average over2025‐30

CBO estimates 1.5%average over2023‐24
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 7/1/20 to 7/30/20 Projected Privately-Held Net Marketable BorrowingOMB's FY2021 Budget, February 2020 PD Survey Privately-Held Net Marketable Borrowing Estimates, July 202OFP's FY2020 Net Marketable Borrowing Estimate, August 2020 CBO's "The Budget and Economic Outlook: 2020 to 2030" January 2020 (cCOVID-19 outbreak adjusted CBO deficit estimates for FY2020 and FY2021, April 2020

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 primary dealer borrowing estimate would 

normalized for $800 billion cash balance. OMB's projections of the change in debt held by the public are from Table S-10 of “A Budget 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 Q3

61.8 m06/30/

60.2 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

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

$ 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" ($b

Bill 4-Week 0.117 2.9 1001.2 39.8 2.6 57.6 18.76 46.2 Bill 8-Week 0.138 2.8 846.3 45.0 3.5 51.4 8.69 38.9 Bill 13-Week 0.149 2.9 755.4 48.8 4.2 47.0 15.64 70.5 Bill 26-Week 0.170 3.0 656.6 48.4 4.5 47.2 12.45 61.2 Bill 52-Week 0.176 3.2 92.2 58.9 7.7 33.4 0.76 11.2 

CMB 6-Week 0.126 2.9 844.8 42.3 3.3 54.5 0.16 0.0 CMB 15-Week 0.149 3.2 485.0 48.0 1.9 50.1 0.03 0.0 CMB 17-Week 0.157 3.2 494.8 51.0 4.9 44.2 0.18 0.0 CMB 22-Week 0.171 3.0 480.0 50.8 3.7 45.5 0.04 0.0 CMB 39-Week 0.175 3.2 70.0 71.5 6.8 21.7 0.01 0.0 CMB Other 0.194 2.9 80.0 49.4 2.1 48.6 0.00 0.0 

Coupon 2-Year 0.199 2.7 131.4 30.0 16.4 53.6 0.62 14.6 Coupon 3-Year 0.285 2.5 125.8 35.0 10.7 54.3 0.18 23.0 Coupon 5-Year 0.352 2.5 135.0 24.4 15.5 60.0 0.05 14.9 Coupon 7-Year 0.529 2.5 114.0 22.3 13.5 64.1 0.02 12.6 Coupon 10-Year 0.768 2.5 86.0 26.3 12.8 60.9 0.01 17.4 Coupon 20-Year 1.263 2.6 37.0 23.3 15.5 61.1 0.01 4.4 Coupon 30-Year 1.372 2.3 58.0 22.8 12.5 64.8 0.01 12.0 

TIPS 5-Year -0.529 2.8 31.9 14.7 8.5 76.9 0.12 3.5 TIPS 10-Year -0.470 2.4 12.0 30.1 7.8 62.1 0.03 0.0 TIPS 30-Year 0.000 0.0 0.0 0.0 0.0 0.0 0.00 0.0 

FRN 2-Year 0.098 3.1 62.0 45.3 18.9 35.8 0.04 1.9 

Total Bills 0.145 3.0 5806.3 46.4 3.6 50.0 56.72 228.0 

Total Coupons 0.527 2.5 687.1 27.1 13.9 59.0 0.90 98.9 

Total FRN 0.098 3.1 62.0 45.3 18.9 35.8 0.04 1.9 

Total TIPS -0.513 2.7 43.8 18.9 8.3 72.8 0.15 3.5 

Summary Statistics for Fiscal Year 2020 Q3 Auctions
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jun-10

Aug-10

Nov-10

Mar-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Feb-14

May-14

Aug-14

Nov-14

Feb-15

May-15

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

Aug-17

Nov-17

Feb-18

May-18

Aug-18

Nov-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

Oct19

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

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 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

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

Oct-19

Bid-to-Cover Ratio

Bid-to-Cover Ratios for 7-, 10-, 20-, and 30-Year 

Nominal Securities

(6-Month Moving Average)*

7-Year 10-Year 20-Year 30-year

* 20-Year bid-to-cover ratio reflects actuals instead of moving average.
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

Oct-18

J19

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%45%

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

Oct-19

Dec-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%

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

Oct-19

Dec-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%

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

Oct-19

Dec-19

6-month moving average

Percent Awarded in 7-, 10-, 20-, 30-Year Nominal Security 

Auctions 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%

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

Oct-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%

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

Oct-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) 7/10/20/30-Year (6-month moving TIPS (6-month moving average)
Competitive Amount Awarded excludes SOMA add-ons. 

0%5%

10%15%20%25%

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

Oct-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) 7/10/20/30-Year (6-month moving averageTIPS (6-month moving-average)
Foreign includes both private sector and official institutions.

0

20406080

100120

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

Jan-20

Feb-20

Mar-20

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2/3/5 7/10/20/30 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

1,0002,0003,0004,0005,000

$ bn

Bills

Outstanding Foreign Holdings Foreign % (RHS)

0

2,0004,0006,0008,000

10,00012,00014,00016,000

$ bn

Nominal Coupons, TIPS, and FRNs

Outstanding Foreign Holdings Foreign % (RHS)
Appendix
Projected Privately-Held Net Marketable Borrowing 

Assuming Private Coupon Issuance & Total Bills Outstanding 

Remain Constant as of 6/30/2020*

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

Fiscal 

Year Bills 2/3/5 7/10/20/30 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 2,703 519 685 46 55 4,008 2021 0 816 866 44 50 1,777 2022 0 506 882 27 32 1,447 2023 0 447 734 23 0 1,204 2024 0 282 796 35 0 1,113 2025 0 79 799 (25) 0 853 

2026 0 0 788 (5) 0 783 

2027 0 0 732 (1) 0 731 2028 0 0 537 (18) 0 518 

2029 0 0 565 (11) 0 555 

2030 0 0 532 (1) 0 531 
*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 4/7/2020 0.090 3.00 79.1 43.6 1.7 54.6 0.9 4-Week 4/14/2020 0.190 2.84 88.6 25.7 4.8 69.5 1.4 4-Week 4/21/2020 0.150 2.90 88.4 36.9 4.2 58.8 1.6 4-Week 4/28/2020 0.090 2.92 88.1 37.3 2.6 60.1 1.9 4-Week 5/5/2020 0.095 2.75 88.1 37.5 1.5 61.0 1.9 4-Week 5/12/2020 0.095 2.87 78.7 35.4 1.0 63.6 1.3 4-Week 5/19/2020 0.090 2.93 78.5 41.1 1.4 57.5 1.5 4-Week 5/26/2020 0.090 2.75 78.6 45.8 2.5 51.7 1.4 4-Week 6/2/2020 0.130 2.55 78.6 45.6 3.1 51.3 1.4 4-Week 6/9/2020 0.125 2.77 78.9 44.3 2.5 53.2 1.1 4-Week 6/16/2020 0.130 2.99 68.5 39.5 2.9 57.6 1.5 4-Week 6/23/2020 0.125 2.89 58.5 44.6 4.6 50.8 1.5 4-Week 6/30/2020 0.110 3.07 48.8 45.4 0.9 53.8 1.2 8-Week 4/7/2020 0.095 2.85 59.8 43.6 1.4 55.0 0.2 8-Week 4/14/2020 0.290 2.56 69.0 53.2 7.1 39.8 1.0 8-Week 4/21/2020 0.150 3.03 69.4 32.4 2.6 65.0 0.6 8-Week 4/28/2020 0.120 2.53 69.6 55.8 3.2 41.0 0.4 8-Week 5/5/2020 0.095 3.07 68.8 38.6 1.6 59.8 1.2 8-Week 5/12/2020 0.110 2.89 69.3 35.5 1.2 63.3 0.7 8-Week 5/19/2020 0.110 2.90 69.5 41.5 1.8 56.8 0.5 8-Week 5/26/2020 0.105 2.65 69.3 50.7 2.7 46.6 0.7 8-Week 6/2/2020 0.135 2.87 68.8 34.9 0.9 64.1 1.2 8-Week 6/9/2020 0.145 2.60 69.7 53.7 3.2 43.1 0.3 8-Week 6/16/2020 0.155 2.86 59.7 41.8 11.6 46.6 0.3 8-Week 6/23/2020 0.135 2.92 54.5 41.6 7.5 51.0 0.5 8-Week 6/30/2020 0.140 2.72 48.9 67.6 2.7 29.7 1.1 

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

"

13-Week 4/9/2020 0.125 2.82 52.5 41.6 1.3 57.1 1.5 13-Week 4/16/2020 0.280 3.10 56.0 49.7 7.2 43.1 1.0 13-Week 4/23/2020 0.125 2.93 56.1 50.6 3.9 45.5 0.9 13-Week 4/30/2020 0.120 3.04 55.3 48.6 2.2 49.2 1.7 13-Week 5/7/2020 0.110 3.00 58.8 48.8 1.4 49.8 1.2 13-Week 5/14/2020 0.125 2.97 62.0 40.1 3.2 56.7 1.0 13-Week 5/21/2020 0.130 2.91 61.7 48.9 4.9 46.2 1.3 13-Week 5/28/2020 0.130 2.88 61.3 45.7 2.4 51.9 1.7 13-Week 6/4/2020 0.150 2.94 62.2 45.3 2.3 52.3 0.8 13-Week 6/11/2020 0.170 2.71 62.1 53.8 7.4 38.9 0.9 13-Week 6/18/2020 0.175 2.96 58.7 43.7 12.1 44.2 1.3 13-Week 6/25/2020 0.155 2.69 55.3 60.5 3.7 35.8 1.7 13-Week 7/2/2020 0.150 2.86 53.3 59.2 1.7 39.1 0.7 26-Week 4/9/2020 0.160 3.08 43.8 42.1 1.4 56.6 1.2 26-Week 4/16/2020 0.290 3.08 47.0 53.7 1.1 45.2 1.0 26-Week 4/23/2020 0.145 3.17 47.1 44.1 2.3 53.7 0.9 26-Week 4/30/2020 0.150 3.25 46.6 48.2 2.1 49.7 1.4 26-Week 5/7/2020 0.130 2.99 50.0 45.9 6.3 47.7 1.0 26-Week 5/14/2020 0.155 2.97 53.2 41.9 5.7 52.4 0.8 26-Week 5/21/2020 0.150 3.13 53.1 45.9 10.9 43.2 0.9 26-Week 5/28/2020 0.160 3.00 52.6 48.3 6.9 44.7 1.4 26-Week 6/4/2020 0.170 2.72 53.4 65.5 5.4 29.1 0.6 26-Week 6/11/2020 0.185 3.01 53.4 44.3 4.1 51.6 0.6 26-Week 6/18/2020 0.185 2.93 53.3 53.2 4.3 42.6 0.7 26-Week 6/25/2020 0.175 2.94 52.6 51.0 3.8 45.2 1.4 26-Week 7/2/2020 0.165 2.99 50.5 43.3 2.4 54.3 0.5 52-Week 4/23/2020 0.165 3.38 27.7 49.4 7.8 42.8 0.3 52-Week 5/21/2020 0.160 3.30 30.8 48.6 9.4 42.0 0.2 52-Week 6/18/2020 0.200 2.91 33.8 76.0 6.0 17.9 0.2 

Bills (cont.)

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

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

CMB 6-Week 4/3/2020 0.080 3.07 45.0 49.9 1.9 48.2 0.0 CMB 6-Week 4/8/2020 0.095 3.15 60.0 37.4 0.6 62.1 0.0 CMB 6-Week 4/9/2020 0.160 2.65 45.0 49.0 5.4 45.5 0.0 CMB 6-Week 4/15/2020 0.190 3.12 65.0 27.7 9.0 63.3 0.0 CMB 6-Week 4/22/2020 0.120 2.89 65.0 42.7 0.4 56.8 0.0 CMB 6-Week 4/29/2020 0.085 3.22 55.0 43.0 0.7 56.3 0.0 CMB 6-Week 5/7/2020 0.115 2.74 65.0 40.2 1.7 58.1 0.0 CMB 6-Week 5/14/2020 0.110 2.93 65.0 42.6 3.5 54.0 0.0 CMB 6-Week 5/21/2020 0.105 2.90 65.0 38.1 1.6 60.3 0.0 CMB 6-Week 5/28/2020 0.120 2.83 65.0 38.4 1.0 60.6 0.0 CMB 6-Week 6/4/2020 0.135 2.83 65.0 41.6 2.8 55.6 0.0 CMB 6-Week 6/11/2020 0.165 2.70 60.0 47.1 10.8 42.2 0.0 CMB 6-Week 6/18/2020 0.150 2.82 50.0 56.5 2.1 41.4 0.0 CMB 6-Week 6/25/2020 0.125 3.20 40.0 44.7 4.7 50.6 0.0 CMB 6-Week 7/2/2020 0.130 3.27 35.0 45.4 3.2 51.4 0.0 CMB 15-Week 4/3/2020 0.125 3.06 40.0 45.0 0.5 54.5 0.0 CMB 15-Week 4/9/2020 0.200 2.79 40.0 36.2 1.6 62.1 0.0 CMB 15-Week 4/16/2020 0.165 3.32 30.0 49.4 1.7 48.9 0.0 CMB 15-Week 4/23/2020 0.105 3.10 30.0 52.7 1.6 45.6 0.0 CMB 15-Week 4/30/2020 0.115 3.05 30.0 50.3 1.8 47.9 0.0 CMB 15-Week 5/5/2020 0.115 3.35 30.0 57.5 1.8 40.6 0.0 CMB 15-Week 5/12/2020 0.125 3.00 30.0 49.4 3.5 47.1 0.0 CMB 15-Week 5/19/2020 0.140 3.51 35.0 53.6 2.5 43.9 0.0 CMB 15-Week 5/26/2020 0.140 3.04 40.0 51.6 2.4 46.0 0.0 CMB 15-Week 6/2/2020 0.165 3.06 40.0 36.3 1.2 62.5 0.0 CMB 15-Week 6/9/2020 0.170 3.25 40.0 40.2 1.0 58.8 0.0 CMB 15-Week 6/16/2020 0.180 3.50 35.0 53.7 1.4 44.9 0.0 CMB 15-Week 6/23/2020 0.170 3.25 35.0 47.6 1.7 50.7 0.0 CMB 15-Week 6/30/2020 0.150 3.35 30.0 56.7 5.1 38.2 0.0 

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

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

"A

CMB 17-Week 4/2/2020 0.130 2.99 40.0 42.0 1.6 56.4 0.0 CMB 17-Week 4/9/2020 0.180 2.74 40.0 47.9 2.2 49.9 0.0 CMB 17-Week 4/16/2020 0.220 4.13 25.0 47.2 19.8 33.0 0.0 CMB 17-Week 4/23/2020 0.110 3.51 25.0 56.1 13.4 30.6 0.0 CMB 17-Week 4/30/2020 0.110 3.50 25.0 52.0 2.7 45.3 0.0 CMB 17-Week 5/7/2020 0.130 3.38 30.0 48.1 1.5 50.4 0.0 CMB 17-Week 5/14/2020 0.145 3.38 35.0 44.4 3.0 52.6 0.0 CMB 17-Week 5/21/2020 0.140 3.10 40.0 57.0 3.5 39.5 0.0 CMB 17-Week 5/28/2020 0.170 2.75 40.0 67.6 2.8 29.7 0.0 CMB 17-Week 6/4/2020 0.165 3.10 40.0 44.5 6.9 48.6 0.0 CMB 17-Week 6/11/2020 0.185 3.30 40.0 44.4 10.9 44.7 0.0 CMB 17-Week 6/18/2020 0.180 3.37 40.0 57.5 1.9 40.6 0.0 CMB 17-Week 6/25/2020 0.155 3.33 40.0 51.1 2.1 46.7 0.0 CMB 17-Week 7/2/2020 0.155 3.17 35.0 53.3 2.4 44.3 0.0 CMB 22-Week 4/7/2020 0.150 2.90 40.0 49.2 1.3 49.6 0.0 CMB 22-Week 4/14/2020 0.250 2.60 40.0 55.0 1.6 43.4 0.0 CMB 22-Week 4/21/2020 0.190 3.14 30.0 49.5 8.9 41.6 0.0 CMB 22-Week 4/28/2020 0.135 3.08 30.0 54.5 2.1 43.4 0.0 CMB 22-Week 5/5/2020 0.140 2.90 30.0 55.7 3.7 40.6 0.0 CMB 22-Week 5/12/2020 0.150 2.91 35.0 58.8 2.1 39.2 0.0 CMB 22-Week 5/19/2020 0.155 2.97 40.0 51.8 10.1 38.1 0.0 CMB 22-Week 5/26/2020 0.150 2.93 40.0 57.5 6.0 36.5 0.0 CMB 22-Week 6/2/2020 0.170 3.16 40.0 39.3 3.7 57.0 0.0 CMB 22-Week 6/9/2020 0.180 3.11 40.0 39.8 3.9 56.4 0.0 CMB 22-Week 6/16/2020 0.190 2.95 40.0 51.8 1.2 47.1 0.0 CMB 22-Week 6/23/2020 0.185 3.22 40.0 49.6 1.5 48.8 0.0 CMB 22-Week 6/30/2020 0.165 3.22 35.0 50.6 2.9 46.6 0.0 CMB 39-Week 4/30/2020 0.165 2.98 25.0 67.5 4.8 27.7 0.0 CMB 39-Week 5/28/2020 0.180 3.17 25.0 75.5 7.4 17.1 0.0 CMB 39-Week 6/25/2020 0.180 3.53 20.0 71.7 8.3 20.0 0.0 CMB CMBs 4/8/2020 0.135 2.71 45.0 52.9 0.9 46.2 0.0 CMB CMBs 4/15/2020 0.270 3.22 35.0 44.8 3.6 51.6 0.0 

Bills (cont.)
*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

5-Year TIPS 4/30/2020 (0.320) 2.74 16.9 14.3 3.0 82.7 0.1 5-Year TIPS 6/30/2020 (0.766) 2.78 15.0 15.1 14.6 70.3 0.0 

10-Year TIPS 5/29/2020 (0.470) 2.39 12.0 30.1 7.8 62.1 0.0 

TIPS

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

"O($

2-Year 4/30/2020 0.229 3.10 41.8 26.4 17.8 55.8 0.2 32-Year 6/1/2020 0.178 2.68 43.8 32.1 14.8 53.1 0.2 42-Year 6/30/2020 0.193 2.46 45.8 31.2 16.7 52.0 0.2 63-Year 4/15/2020 0.348 2.27 39.9 40.5 4.1 55.4 0.1 03-Year 5/15/2020 0.230 2.54 42.0 32.6 13.1 54.4 0.0 23-Year 6/15/2020 0.280 2.55 44.0 32.2 14.5 53.3 0.0 05-Year 4/30/2020 0.394 2.74 43.0 19.4 20.2 60.4 0.0 35-Year 6/1/2020 0.334 2.28 45.0 31.8 10.8 57.3 0.0 45-Year 6/30/2020 0.330 2.58 47.0 22.0 15.8 62.3 0.0 67-Year 4/30/2020 0.525 2.56 35.0 21.3 12.3 66.4 0.0 37-Year 6/1/2020 0.553 2.55 38.0 24.0 12.4 63.6 0.0 47-Year 6/30/2020 0.511 2.49 41.0 21.7 15.7 62.6 0.0 5

10-Year 4/15/2020 0.782 2.43 25.0 27.6 13.2 59.2 0.0 010-Year 5/15/2020 0.700 2.69 32.0 20.5 13.3 66.1 0.0 110-Year 6/15/2020 0.832 2.26 29.0 31.5 11.8 56.7 0.0 020-Year 6/1/2020 1.220 2.53 20.0 24.6 14.7 60.7 0.0 220-Year 6/30/2020 1.314 2.63 17.0 21.9 16.5 61.6 0.0 230-Year 4/15/2020 1.325 2.35 17.0 22.6 11.0 66.4 0.0 030-Year 5/15/2020 1.342 2.30 22.0 21.4 12.9 65.7 0.0 130-Year 6/15/2020 1.450 2.30 19.0 24.5 13.3 62.2 0.0 0

2-Year FRN 4/30/2020 0.114 3.02 22.0 31.5 17.1 51.4 0.0 12-Year FRN 5/29/2020 0.098 3.12 20.0 46.1 20.2 33.7 0.0 02-Year FRN 6/26/2020 0.080 3.16 20.0 59.6 19.6 20.8 0.0 0

Nominal Coupons
While Treasury met the immediate financing needs related to the COVID-19 outbreak 

primarily through increased bill issuance, Treasury has begun shifting financing from bills 

toward longer-dated tenors in order to manage its maturity profile (as announced in the 

May Quarterly Refunding Statement). Please discuss the factors that Treasury should 

consider and potential approaches Treasury should evaluate as it works to manage its 

maturity profile. 

TBAC Charge – Treasury Financing Post COVID-19

1
• The COVID-19 crisis led to a severe contraction in economic activity and an unprecedented fiscal and monetary

policy response. The sudden shock to growth, large deficits, and interest rates constrained by the ZLB will likely

cause debt/GDP and debt-service/GDP to rise in the coming years, posing a debt management challenge

• We analyze the factors that drive debt/GDP, estimating the historical factor distribution, and highlight the

important contribution fromdebt management

• We show that close proximity to the nominal ZLB improves the cost/risk trade off for fixed rate and inflation linked

issuance compared to floating rate issuance

• We consider the current low rate environment and compare estimates of term premium across the curve. We find

thatterm premia formaturitieslessthan or equal to 10 year are low compared to longermaturities

• We discuss the effect of the elevated size of the Fed’s balance sheet on debt management. We argue that the

growth in SOMA holdings increases Treasury’s capacity to use T-Bill issuance as a shock absorber in the near term,

but could pose a future funding risk given the Fed’s incrementalrun-off capacity

• We discuss the effect of rising debt/GDP on Treasury yields and show that increased deficits usually correspond to

increased private sector savings. The recent rise in private sector savings is the largest on record and flows

associated with thatsavings growth should continue to support private sector demand for T-Bills

• We show that over the past 20 years, reductions in the 10 year yield can be explained largely by reductions in

expected short rates and real rate risk premium while funding risk premium has exerted upward pressure (although

to a smaller extent). Near the ZLB we would not expect further reductions in expected short rates, which may leave

the longermaturitiesincreasingly sensitive to supply effects

Executive Summary

2
Macroeconomic Context

3
Macro Outlook Before and After COVID-19

COVID-19 caused a historic shock to deficits and growth, and is likely to lead to elevated SOMA holdings and Fed funds 

at ZLB for an extended period

4

We expect significant further growth in the SOMA portfolio 

expressed in units of ten year note equivalents (TYE) due to 

deeply negative levels of the inertial Taylor rule

The inertial Taylor rule and the Fed funds shadow rate, an 

adjustment to the Fed funds rate to incorporate the effects of QE, 

don’t converge for several years

We update the CBO’s long-term primary deficit forecast 

published in Jan 2020 for disaster recovery legislation and the 

deterioration in the macroeconomic outlook

We expect GDP returns to Q4 2019 levels at the end of 2021

Source: Author’s Calculations Source: Author’s Calculations

Source: US Treasury, CBO, Author’s Estimates Source: BEA, CBO, Author’s Calculations
Debt/GDP Factor Analysis

5
Debt/GDP Risk Factors

Deficits, interest rates, GDP growth, debt management, and Fed remittances are important drivers of Debt/GDP

• If we denote the nominal GDP deflator by Y, the ratio of the market value of debt to GDP

by Debt

Y, the returns of Treasury debt in excess of T-Bills by UST xs, and the returns of

the SOMA portfolio in excess of funding costs (expressed as a % of the debt) as SOMA xs

then the equation for the evolution of the ratio of debt to GDP can be written1

• The equation predictsthat changesin debt/GDPwill increase with

• Short rates(bill yield)

• Excess returns on Treasury debt, which are driven by risk premia and price shocks

• Primary deficits (expressed above as % of the debt), which are driven by macro

factors(e.g., tax receipts, automatic stabilizers) and discretionary spending

• And debt/GDP will decrease with

• GDP growth

• Excess returns on the SOMA portfolio, which are also driven by risk premia and price

shocks

1 Our analysis closely follows Hall and Sargent, “Interest rate risk and other determinants of post WWII U.S. government debt / GDP dynamics”, SSRN 1673451 (2010 )

2 Debt service cost as defined above explains fluctuations in debt/GDP due to consolidated Treasury/Fed asset and liability man agement decisions. It includes changes in the 

market value of the debt and hence is not equivalent to the interest expense on the debt outstanding reported by Treasury
2004-2020 

Statistics

primary 

deficit

UST 

excess

SOMA 

excess

gdp

growth

bill 

yield Total

Annualized

Mean 4.0% 2.0% -0.6% -1.3% 0.6% 4.7%

Annualized

Stdev 3.0% 3.2% 0.8% 2.8% 0.3% 6.1%

Risk 

contribution2 43% 24% -6% 40% -1% 100%

First PC 1.4% 0.5% -0.1% 1.3% -0.1%

Debt/GDP Risk Factors: Historical Analysis

Fixed rate issuance increased the level and volatility of the market value of debt-to-GDP over the past decade 

• The primary deficit has been the main driver of

debt/GDP growth and the largest contributor to

debt/GDP volatility

• Excess return on Treasury debt has been the

second largest driver of debt/GDP growth.

Cumulative excess returns on Treasury debt

reflect the opportunity cost of past decisions to

issue fixed instead of floating rate debt1

• GDP growth and SOMA portfolio remittances

have reduced the debt/GDP ratio by 1.9% per

annum since 2004

• Q2 2020 represents a period of extreme stress,

in which every risk factor, except SOMA xs,

contributed to the 25% increase in debt/GDP

• The first principal component of the debt/GDP

decomposition explains 71% of total variance

and highlights the relative volatility and

correlation between the risk factors.

Specifically, it shows that the contribution to

debt/GDP from primary deficits and growth

tends to be large and correlated with excess

returns on Treasury securities. It is for this

reason that fixed rate issuance has increased

debt/GDP volatility

A

A

B

B

C C

D

D

E A B C

E

1 Here we are ignoring potential supply effects 2 Hot SpotsTM and Hedges. Robert Litterman. The Journal of Portfolio Management A Tribute 

to Fischer Black 1996, 23 (5) 52-75; DOI: https://jpm.pm-research.com/content/23/5/52

Source: Author’s Calculations
Proximity to the Zero Lower Bound

8
• TBAC does not drive recommendations off one model, but instead takes into account a wide range

of inputs on investor demand and market pricing

• The debt management model developed by TBAC1,2,3,4 contains a number of key components which

we briefly review below

• A simulationmodule consisting of:

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

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

realrate of interest

- A model for the nominal and real yield curve using expected Fed policy and term premium

- A model for Treasury term premium including inflation, real rate, liquidity, and funding

components

- A model of the evolution of the SOMA portfolio including Agency MBS prices, prepayments, Fed

remittancesto Treasury, assumptions about SOMA reinvestment and QE

• A fiscal module for the primary budget deficit

• A debt dynamics module that projects current and future debtissuance

• An optimization module that identifies low cost strategies given risk appetite and constraints and

can generate both static solutions where issuance fractions never change and dynamic solutions

where issuance depends on macro variables

Review of TBAC Model Components

The TBAC model allows for simulation and optimization of Treasury debt issuance 

9

1Belton et al, 2TBAC TIPS Charge, 3TBAC FRN Charge, 4TBAC SOMA Charge
more bonds

more belly

more bills

more bonds

more belly

more bills

more bonds

more belly

more bills

Insights from Past Debt Optimization Research

The optimal maturity structure of debt is sensitive to the choice of risk metrics and to estimates of expected cost

• Previous work1,2 on debt optimization highlights that the optimal maturity structure of debt depends on both the degree of risk aversion (RA) of 

the debt manager and whether risk is better measured by the volatility of debt service/GDP, the volatility of total deficits/GDP, or the volatility of 

debt/GDP

• When risk is measured by the volatility of debt service costs (left plot), increased allocation to floating rate debt at the expense of 2-, 3-

and 5-year fixed rate 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 (middle plot), a heavier allocation to floating rate debt is appropriate as the strategy 

benefits from the correlation between rates and the primary deficit

• When risk is measured by the volatility of debt/GDP (right plot), floating rate debt is the dominant strategy because it benefits from low 

cost and low risk due to the correlation between rates, the primary deficit, and growth. 

• The debt/GDP dynamics equation3 helps to build intuition for the plots below. Since bill yields are negatively correlated with primary 

deficits and positively correlated with GDP growth, floating rate debt reduces debt/GDP risk. Conversely, since excess returns on fixed 

rate debt are positively correlated with primary deficits and negatively correlated with GDP growth, fixed rate debt increases debt/GDP 

risk

• The optimal debt structure also depends critically on estimates of term premium and its decomposition into liquidity, funding, inflation, and real 

rate risk premia. The results below assume an upward sloping term structure of term premia

10

1 Belton et al 2 Counterfactual debt management experiments in the plots on this page ignore potential supply effects.3 Repeated above without the complication of the SOMA portfolio

baseline baseline baseline
Static Optimization Results Before and After Covid-19

Increased debt, deficits, and proximity to the ZLB dominate the effect of low interest rates on the cost/risk tradeoff

• Efficient frontiers come from minimizing the objective:

cost + RA × risk

for different levels of risk aversion (RA)

• Cost and risk are evaluated at the simulation horizon (20 years

forward)

• Risk is defined tobe the volatility across all simulated paths of

• debt service / GDP(top left)

• total deficit / GDP (bottom left)

• debt / GDP (bottom right)

• In all cases, the post Covid-19 cost/risk tradeoff is less attractive

due to increased debt, deficits, and proximity to the ZLB, i.e., the

post Covid-19 frontiers are up and to the right of the pre Covid-19

frontiers

• If we remove the ZLB, the frontier shifts down and to the left

11

Source: Author’s Calculations

Source: Author’s Calculations

Source: Author’s Calculations
Static Optimization Results Before and After Covid-19

Close proximity to the ZLB favors longer maturity and TIPS issuance under debt and deficit risk metrics 

10y

5y 3y

2y

7y

30y

TIPS

Source: Author’s Calculations

3y

2y

10y

5y

7y

30y

After the COVID-19 data update the model shifts out of bills into 

TIPS for low RA and out of 2y-5y into 7y-10y for moderate RA. 

The move out of bills into TIPS makes sense given how far TIPS 

are from the principal floor 

For RA ≥ 1.5 the model shifts into the 7y-30y sector, for low RA the 

model shifts into 7y-10y year and TIPS

20

3y

2y

TIPS 10y

5y

7y

Source: Author’s Calculations

Source: Author’s Calculations

3y

2y

10y

5y

7y

T-Bills

Source: Author’s Calculations

For deficit/GDP volatility the pre COVID-19 optimal issuance was 

heavy in the belly for moderate RA and heavy on bills for low RA

For debt service/GDP volatility the pre COVID-19 optimal issuance 

was heavy in the belly for risk aversion (RA) less than 1.5 and heavy 

on long issuance for RA greater than 1.5

T-Bills

Risk Aversion

Risk Aversion

Risk Aversion

Risk Aversion
• We introduce a new macroeconomic variable to the optimal response

function to capture the effect of expected timespent at the ZLB. It is defined

as

Taylor Gap(t) = Fed Fund Rate t − Inertial Taylor Rule t

• We optimized issuance strategies, allowing issuance weights to depend on

TP10 and the Taylor Gap. Dynamic optimization allows the efficient frontier to

shift down andto theleft.

• At the ZLB, the Taylor Gap causes the model to rotate out of bills and into

intermediates and TIPS for lowerlevels ofriskaversion

• For higher levels of risk aversion, the model rotates out of bills into

intermediates,

• High TP10 pullsissuancefromlongermaturitiesinto Bills

13

Dynamic Optimization Results 

Low term premium and proximity to the ZLB favors intermediate and TIPS issuance in the dynamic setting as 

well

A

A

B

Source: Author’s Calculations Source: Author’s Calculations

Source: Author’s Calculations

B

A

C
• Simple sensitivity analysis may help to explain the model results based on simulations. Sensitivity analysis

shows that longer maturity fixed rate debt becomes increasingly attractive as yields approach the ZLB due to

price convexity

• Assuming that the Federal Reserve does not intend to take rates negative, the risk to further yield drops is

limited to the current yield

• In the table below we show the expected reduction in debt/GDP from issuing an additional 5% of GDP in each

maturity, under interest rate scenarios in which rates rise by 100 and 200 bp, and in which they drop by 100

bp and 200 bp, but are floored at zero. Note that this analysis assumes nothing about the likelihood of these

rate outcomes

• The 1y-10y sector exhibits positive convexity for +-100 bp shocks, i.e., the upside benefit in rising rate

scenarios outweighs the downside risk to further decrease in rates. For +-200 bp shocks, issuance in the 1y20y sector exhibits positive convexity.

• A principal components analysis of interest rates, deficits, and GDP growth shows that a -100 bp shock has

historically been accompanied by a deterioration of GDP growth by -2%, and an increase in the primary deficit

of about 2.25% of GDP. In such a scenario, the limit on downside risk of fixed rate issuance near the ZLB could

be a significant benefit

Price Risk at the ZLB: Sensitivity Analysis

Sensitivity analysis highlights the increased convexity benefit of fixed rate issuance as yields approach the ZLB

A

A

Source: Author’s Calculations
2y FRN Bill 2y N 3y N 5y N 7y N 10yN 30y N 5y

TIPS

10y

TIPS 

30y 

TIPS 

Average issuance rate 3.09 2.99 2.96 3.02 3.15 3.29 3.44 4.01 1.07 1.21 1.79 

Average debt service/GDP 2.62 2.49 2.46 2.55 2.75 2.97 3.21 4.00 2.58 2.81 3.62 

Standard deviation debt 

service/GDP 1.70 1.67 1.41 1.13 0.72 0.71 0.82 1.10 1.74 1.65 1.81 

Standard deviation total 

deficit(%GDP) 2.35 2.34 2.15 2.09 2.11 2.11 2.14 2.29 2.42 2.31 2.43 

Correlation funding cost, 

primary deficit (%GDP) (0.15) (0.15) (0.18) (0.11) 0.13 0.14 0.11 0.10 (0.12) (0.16) (0.14)

TIPS as an Alternative to Bills and FRNs at the ZLB

At the ZLB TIPS may retain their favorable correlation with deficits and growth better than floating rate debt

• In past work1,2 we have shown that away from the ZLB

TIPS, FRNS, and bill funding costs are negatively correlated

with deficits and so they provide a hedge against down

rate, growth, and inflation scenarios

• While TIPS are subject to a par principal floor, at current

levels of break even inflation, TIPS provide some

protection from rollover risk and scenarios involving

weakergrowth and higherdeficits

15

A

B

Source: Author’s Calculations

A

Source: Bloomberg

1TBAC FRN Charge 2TBAC TIPS Charge
Term Structure of Interest Rates

16
Treasury Term Premium

While the overall level of term premium has declined and appears to be at historic lows, 20 and 30 year UST term premia remain elevated 

relative to the 10 year maturity

• Many estimates of 10 year Treasury term premium show evidence of a

decline over the past decade; however, most components of term premia

areunobservableand difficultto estimate ex-ante

• In prior work1, we defined the funding risk premium (FRP) to be the

observable difference in yield between on-the-run Treasuries and matched

maturity Fed funds (FF) OIS swaps

• While the levels of spot term premia are difficult to determine, conditional

on knowing convexity adjustments and on setting reasonable restrictions on

expected FOMC policy in equilibrium, forward term premia can be estimated

with greater precision than spot

• These observations allow us to combine the ACM term premium estimate for

spot 10y TP and forward TP estimates to show that TP in 20y and 30y are

93bps and 147bps higher than 10y TP respectively. This suggests that

issuance in maturities shorter than 10y is significantly less costly to Treasury

Source: Author’s Calculations

Source: Author’s Calculations

A

C

B

B

Spot Term 

Premia OIS

ACM 

10y

20y 30y

2019-12-31 -.49% .17% .60%

2020-07-24 -.94% -.01% .53%

1TBAC FRN Charge

C

A
Forward Term Premia in the Swap Market

Ten year forward term premia in the Fed funds OIS swap market1 are most likely positive

• Forward Treasury yields and Fed Fund OIS break even forward swap rates can be decomposed as

y 0,t, T = Expected Short Rate(0,t, T) + Term Premium 0,t,T − Convexity Adjustment(0,t,T)

• Convexity adjustments are always positive and increase with maturity. In the plot below we use the TBAC model’s assumed convexity

adjustmentsto compute the convexity adjusted Fed funds overnightforward curve.

• Since the typical business cycle lasts approx. 10 years, it is reasonable to expect that the Fed will have reached its equilibrium funds rate

10 years from now. Therefore, it makes sense to hold the expected Fed funds rate constant after 10 years (i.e., there is no reason to

expect 10 year forward hikes or cuts). This regularizing assumption allows us to estimate the forward term premiumas

Term Premium 0,t,T = y 0,t, T + Convexity Adjustment 0,t, T − Expected Short Rate(0,t,t)

B

A

B

B

A

Forward TP FF 

OIS

10yf10y 10yf20y

2019-12-31 .32% .56%

2020-07-24 .29% .47%

Source: Author’s Calculations Source: Author’s Calculations

1Typically FF OIS swap curves are calibrated in conjunction with LIBOR (and possibly other) swap markets. Despite liquidity va riation across tenors between the different markets the joint 

calibration procedure, in conjunction with regularization methods, produces a robust estimate of swap rates for FF OIS swaps even for long maturities
• In past work1 we defined funding risk premia (FRP) as the

difference between UST cash yields and FF OIS matched

maturity swap rates. It represents the risk premia investors

require forproviding termfunding2.

• The difference between the 10 year forward 20 year (red-line

top right) and the 10 year (blue-line top right) FRP is historically

wide. This indicates that the spot 20 and 30 year FRP are

currentlywide relative to 10 year.

Funding Risk Premia

10 year forward 20 year UST / FF OIS asset swap spreads are elevated compared to 10 year spot spreads 

B

A

B

A

A

1TBAC FRN Charge

2 By differencing observable Treasury yields and swap rates to estimate FRP, we are assuming that Treasury/swap convexity adjustments are close to one another and approximately cancel

Source: Author’s Calculations

Source: Bloomberg and Author’s Calculations

Source: Author’s Calculations
The Federal Reserve’s Balance Sheet

20
Federal Reserve Balance Sheet Expectations

Elevated levels of the Fed’s balance sheet will affect consolidated cost/risk metrics and put downward pressure on 

Treasury yields across the curve

21

• In past work1, we recommended focusing on the consolidated Fed and Treasury balance sheet to capture the contribution

of the SOMA portfolio to debt management cost and risk metrics

• Here again, on slide 7 we showed that the Fed’s balance sheet contributes directly to debt/GDP dynamics (and thus cost

and risk) viaremittances, but it also influences debt/GDP through indirect channels, including

• Treasury term premia2- which affect debt/GDP through excess returns on the Treasury portfolio and through

unemployment and output gaps (i.e., deficits and growth)

• Treasury financing conditions and duration demand via banking sector balance sheets

• The plots below show the expected trajectory of the Fed’s balance sheet in the TBAC debt management model, which

incorporates QE through a reaction function that is proportional to the amount by which the Fed would like to lower the

short rate below the zero bound. The plotsshow that QE is the main driverof expected near and mediumterm growth

• We have argued1that the Fed, in conducting monetary policy through QE, should be allowed to change the interest rate

risk of outstanding debt for economic purposes; therefore, we focus on how the Fed balance sheet might affect Treasury

portfolio rolloverrisk and Treasury’s ability to use T-Bills as a shock absorber for unexpected deficitfinancing needs

1 TBAC SOMA Charge

2 Cavallo et al., “Fiscal Implications of the Federal Reserve‘s Balance Sheet Normalization”, (January, 2018). .

Source: Author’s Calculations Source: Author’s Calculations
Fed Run-off Capacity

The capacity for run-off of the Fed’s portfolio increases tactical funding risk for Treasury in the future

22

• Increased run-off capacity could pose a risk of future Treasury funding stress if the Fed were to allow its

balance sheet to fallrapidly

- Thus, an important consideration for debt management would be whether the Fed would impose runoff capsto make the debt managementimplications manageable.

- If the run-off of SOMA assets were relatively gradual and known in advance, it would allow the

Treasury to maintain a “regular and predictable” issuance approach.

• Assuming additional QE, consistent with our QE reaction function and absent run-off caps imposed by the

Fed, we estimate the SOMAportfolio could create incrementalrolloverrisk of approx. 9%-14% ofGDP

A

A

Source: Bloomberg and Author’s Calculations Source: Bloomberg and Author’s Calculations
The Trade-Off Between Cost, Risk, and Rollover

Rollover risk can be efficiently reduced by increasing issuance in 7y-10y nominals and TIPS

The current debt distribution excluding the contribution of the Fed’s 

balance sheet 

A threshold of 20% of GDP constrains rollover to be close to current 

levels, with moderate increase in cost

Weights along the 20% rollover threshold efficient frontier highlight 

the allocation to longer maturities, and TIPS. Steady state debt distribution with 20% rollover threshold and risk 

aversion set equal to 2

Risk 

Aversion

20

Source: Author’s Calculations

Source: Author’s Calculations

Source: Author’s Calculations

Source: Author’s Calculations

10y

5y

3y 2y

7y

TIPS

RA=2
Flows Affecting Treasury Financing Conditions in the 

Context of Large/Uncertain Deficits

24
25

Government Deficits and Private Sector Savings

Loanable funds are not finite in supply, typically deficits are mirrored by private sector savings

• The relationship between private sector financial savings,

government deficits, and the current account balance is

governed by the followingmacroeconomicaccounting identity

Private Net Savings = Government Deficits + Net Exports

• Historically we can see that net exports exhibits a low

correlation to private savings and government deficits, while

private savings and government deficits are nearly mirror

images of one another

• Given the severity of the economic decline and the aggressive

fiscal policy response to the COVID-19 crisis, it is unsurprising

that the personalsavingsrate rose to historically high levels

• Given our deficit/savings outlook for the remainder of 2020 and

2021, we do not expect to see rapid outflows in relatively safe

financial assets such as USTs and government only money

market funds

A

B

C

A

B

C

Source: Bloomberg and Author’s Calculations

Source: Bloomberg
26

Effect of Bank Reserves on Treasury Financing Conditions

The banking sector intermediates SOMA growth, putting incremental downward pressure on Bill and Coupon yields

• Reserve growth due to QE significantly increased cash assets

and deposits in the banking sector. Recently TGA growth has

caused reserves to decline; however, reserves are likely to

surpass their Q2 2020 peak as the TGA normalizes and Fed QE

continuesin H2 2020

• Treasury reverse repo and T-Bills assets are highly

substitutable with reserves from a capital, liquidity, and

interest rate risk perspective. Large stocks of excess

reserves will put downward pressure on Treasury

financing ratesand T-Bill yields

• Banks model deposits as partially fixed rate liabilities. Deposit

growth will create HQLA duration demand, in the belly of the

Treasury curve, to hedge banking sector economic value of

equity (EVE) and earningsrisk.

• If banks purchase the fixed rate assets from the nonbank private sectorthis will create additional deposits

A

B A

B

A A

Source: Federal Reserve H8 Report

Source: Federal Reserve H.4.1 Report 

Source: Federal Reserve H8 Report
27

Funding Market Response to Growth in Bank Reserves

Reserve injections and 13(3) facilities stabilized funding markets overnight, term, secured, and unsecured

• As the supply of reserves to banks increased, overnight

secured and unsecured funding ratesfell well below IOR.

• Term secured and unsecured money market rates

normalized in response to the Fed’sliquidity operations

• Despite distress in the term Treasury financing markets

and heavy T-Bill supply to support the disaster response, TBill yieldsremained low and stable.

• In the near term, reserve growth at commercial banks and

lower asset volatility will support Treasury financing

conditions and create incremental capacity for Treasury to

use the T-Bill market as a shock absorber for unexpected

financing needs

A

C

B

C

A

B

B

C

Source: Bloomberg and Author’s Calculations

Source: Bloomberg
Sectoral flows - 12-31-19 to 6-30-20

Treasury Fed Banks RoW Row Sum

Reserves - (1,314) 1,314 - -

USTs (5,253) 1,876 187 3,191 -

Deposits 1,253 (1,253) (2,243) 2,243 -

Tax Obligation 4,000 - - (4,000) -

Other Assets - 979 827 (1,807) -

Other Liabilities - (288) (86) 373 -

Column Sum - - - - -

BS Size 5,253 2,855 2,328 5,807

• In the transaction flow matrix to the left, columns represent sectors

and rows represent asset/liability categories. Entries with a positive

sign indicate asset growth and entries with a negative sign indicate

liability growth. The columns sum to zero since asset growth must

equal liability growth. The rows sum to zero since one sector’s

financial asset is another sector’s financial liability. The matrix

captures the sectoral balance sheet flows due to deficit spending

and QE. Itshows that

• Continued Federal Reserve balance sheet expansion ensures

ongoing demand for bills and intermediates maturities

through

• Direct purchasesinto the SOMA portfolio

• Bank fixed rate liability creation which is typically

hedged

• Increased demand for yield enhancement on

banking sector excessreserves

• Deficit spending creates household financial savings and

future tax liabilities resulting in at least some new Treasury

demand

• As evidenced by growth in money fund balances

and T-Bill holdings

• Reallocation into risk assets could impact crosssectional term premia and asset swap spreads, but

savings won’t be destroyed

• In addition, the Federal reserve implements monetary policy by

controlling the constellation of money market ratesin the short end

of the yield curve while allowing the size of their balance sheet to

float. This means that there is little risk of T-Bill yields rising much

above IOR, SOFR, or Fed funds effective

28

Investor Demand for Bill Issuance is Unlikely to Reverse Rapidly

Q2 Treasury issuance was readily absorbed by the Fed, MMFs, and banks

A

B

Sources: Federal Reserve H8 and H4 Reports, and Author’s Calculations

C

C

C

A

B
29

Supply Effects in the Longer Maturities

Longer maturity yields may become more sensitive to supply at the ZLB

Source: Bloomberg

Swap 

Spread Beta t-stat p-value R2

2y 0.042 3.195 0.001 0.164

5y 0.066 2.425 0.015 0.245

10y 0.102 3.290 0.001 0.410

30y 0.150 4.584 0.000 0.464

Over the past 20 years, yields have fallen steadily despite rapidly

growing debt/GDPandlargenet Treasury supply after theGFC

Over this period, the 10y yield has decreased largely due to reductions

in expected short rates and real rate risk premium. Funding risk

premium has exerted upward pressure (although to a smaller extent)

on the 10y yield

A weak economy tends to causedeficits to riseand rate expectations to

fall. However, further reductions in expected rates may be limited near

the ZLB, leaving longer maturitiesincreasinglysensitiveto supply effects

Heavy supply may cause the FRP to increase, particularly for longer

maturities. The tablebelowreports selected statistics for regressions

on monthly data (1999-2020) oftheform

Stτ = α + βpdt + εt

where pdtis the primary deficit/GDP and St(τ) is the τ-year LIBOR

swap spread

Source: Author’s Calculations

Source: Author’s Calculations

Source: Author’s Calculations
Conclusions and Recommendations

30

• Assuming that the Federal Reserve does not intend to take rates negative, intermediate issuance at fixed rates near the ZLB could be an

attractive optionto control rollover risk while hedging againstrising rates.

• IncreasedTIPS issuance could be an effective tool to control rollover risk while hedging against weaker growthand higher deficits

• Term premia for maturities less than or equal to 10 year are low compared to longer maturities, and the 7y-10y sector offers a relatively cost

effective way toreduce rollover risk

• The TBAC debt management model continues to favor short to intermediate maturity issuance for moderate levels of risk aversion. The TBAC

model allows Treasury to define risk using debt service/GDP, deficit/GDP, and debt/GDP volatility. With risk defined as debt service/GDP and

deficit/GDP the ZLB causes the model to increase allocations to 7y-10y nominals and TIPS for moderate to low levels of risk aversion. With risk

defined as debt service/GDP,the ZLB causesthemodel to increase allocationsto longer maturities(e.g., 30y)for higherlevels of risk aversion

• Over the medium term, the Fed’s balance sheet is likely toremain elevated

• Direct purchasesinto the SOMA portfolio put downward pressure on risk premia improving financial and macroeconomic conditions. We

reiterate our recommendation that the Fed, in conducting monetary policy through QE, should be allowed to change the interest rate

risk of outstanding debt for economic purposes

• Fed purchases are intermediated by the banking sector; therefore, QE creates excessreserve assetsin the banking system. The banking

sector’sincentive to enhance yield on excessreserves grows with the share of the banking sector balance sheet allocated to reserves. TBills are highly substitutable with reserves from a capital, liquidity, and risk perspective. Thus reserve growth creates incremental

capacity for Treasury to use the T-Bill market as a shock absorber for unexpected deficit financing

• Fed balance sheet growth also creates fixed rate banking sector liabilities that lead to incremental demand for fixed rate Treasuries in

the belly of the curve

• Over the longer term, Fed balance sheet growth creates operational/rollover risk for Treasury. If desired, this risk can be mitigated

efficiently by favoring intermediatematuritynominal and inflation linked issuance over T-Bills

• The emergency pandemic deficit spending in Q2 2020 coincided with a historic rise in household financial savings. Private savings, held in

government only money market funds, supported Treasury financing conditions and increased the capacity for Treasury to issue T-Bills. We do

not expectflows into these assetsto reverse rapidly assavings should remain elevatedwith deficit spending over the nearterm

• Over the past 20 years, reductionsin the 10 year yield can be explained largely by reductions in expected short rates and real rate risk premium.

Funding risk premia have exerted upward pressure on long maturity yields and may be more sensitive to supply. Near the ZLB we would not

expectfurther reductionsin expectedshort rates, which may leave the longer maturitiesincreasingly sensitive to supply effects
Appendix: Deficit Forecast Details

We update the deficit forecast to reflect taxes, unemployment benefits, and emergency pandemic legislation

31

• Forecasts produced for each of three periods, using

information fromCBO where applicable:

• FY2020-21: Primary deficit forecasts are based on total

deficit forecasts published by the CBO in late April, which

incorporate effects of major pandemic legislation and are

based on updated economic projections. CBO has not yet

published updated budget projections beyond FY2021

• FY2028-40: The CBO’s July 2020 economic projections

show unemployment converging to pre-crisis trend in

2028. We therefore view it at reasonable to use the

CBO’s most recent long-term primary deficit projections,

published Jan 2020, for FY2028 and beyond.

• FY2022-27: CBO does not have up-to-date forecasts for

these years. We allow the transition from the short-term

to long-term forecasts during FY2022-27 to be guided by

the path of UGAP, in the spirit of the TBAC debt

optimization model. Lingering effects of pandemic

legislation are then layered on.

• Annual estimates for the deficit impact of pandemic

legislation are available directly fromthe CBO

• We interpolate annual forecasts to obtain quarterly

forecasts based on considerations such as the timing of

pandemic programs (e.g., expiration date of expanded

unemployment benefits) and the path of quarterly

unemployment

Major Emergency Pandemic Legislation

Coronav irus 

Preparedness 

and Response 

Supplemental 

Appropriations 

Act, 2020

Families First 

Coronav irus 

Response Act

CARES Act

Paycheck 

Protection 

Program and 

Health Care 

Enhancement 

Act

Passage Date March 6, 2020 March 18, 2020 March 27, 2020 April 24, 2020

10Y Deficit Impact ($B) 8 192 1721 483

Source: CBO

Source: CBO and Author’s Calculations
• Assume the short rate r is generated using a single factor Vasicek model 

• Then τ-maturity zero coupon bonds (ZCB) are governed by dynamics1

• Let g denote the nominal GDP growth rate, and denote the nominal GDP deflator by

• Let B t, τ denote a payment on the debt due at time t + τ, then the market value of debt and the 

debt/GDP ratio is given respectively by

• Let ρ(t) be the primary deficit expressed in units of the debt, i.e., ρ t =

pd t

D(t)

, then

• Now define the excess returns for ZCBs to be and let the weighted 

average excess return for USTs be as below. Finally, add in the SOMA excess returns and the result 

follows

Appendix: Outline of Debt/GDP Decomposition

1 32

μ τ , is the τ-maturity ZCB term premium and σ(τ) is the τ-maturity ZCB price volatility
• The TBAC model1 utilizes an inertial Taylor rule to determine the appropriate level of the Fed funds 

rate, which we denote FFI. The actual Fed funds rate FF is equal to FFI, but is floored at 0.125%.

• To take into account the effect of the Fed’s QE program, we define the shadow Fed funds rate

FFS = FF − 0.18% TYE

where TYE is the amount of excess duration purchased by the Fed, in 10 year Note equivalents, as 

a percentage of GDP. Thus, a purchase of 1% of GDP in 10 year Notes would lower the shadow Fed 

funds rate by 18 basis points.

• In the model, the Fed embarks on QE purchases if FFI reaches a level that is 100 bp below the 

current shadow Fed funds rate. The Fed purchases enough 10 year Note equivalents to get the 

shadow Fed funds rate 60% of the way to the inertial Taylor rule value:

TYE = 0.6

FF − FFI

0.18%

• After the economy has recovered to a point where the inertial Taylor rule results in a rate above the 

shadow Fed funds rate, the Fed begins to taper. We allow Treasuries and MBS to roll off but enforce 

that the excess Fed balance sheet does not decrease by more than 5% in any quarter.

Appendix: Fed QE Reaction Function in TBAC Model

33 1TBAC SOMA Charge