Presentation to the 

Treasury Borrowing Advisory Committe

U.S. Depa

Offic
Office of Debt Management

Borrowing requirements continue to grow

Fiscal Year to Date Deficits

(monthly data) 

-49

-258

-148

-121

-157

-56

-154

-106 -88

-311

-152

-319

-371

-162

-269

-163

-263

-122

-42

-80

-274

-81

-48

-1200-1000

-800-600-400-200

0

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

$ Billions

2007 Y-O-Y % Change

2008 2009
Office of Debt Management

The budget deficit to date has increased unabated thquarters of fiscal year 2009

Cumulative Budget Deficit by Month

FY 2009 v. Previous Years

($1,600)($1,400)($1,200)($1,000)

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

$0

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. 

Month

$ Billions

2004 2005 2006 2007 2008 
Office of Debt Management

Based on initial OMB guidance in May 2009, elevated remain for the next few years

Inte

0

100200300400500600700800

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

$Billions

Interest Expense as % o

Interest Expense 

Annual Deficits

-2,000-1,500-1,000

-500

0

500

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Years

$ Billions 

-14-12-10-8-6-4-2024

Percent of GDP

OMB 5/09 Budget Estimates

Surplus/Deficits$ millions (LHS)

Surplus/Deficits as a Percentage of GDP (RHS)

Net Ma

-10%

-5%

0%5%

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

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

Net Marketable Bo

Net Marketa

Debt as % of GDP

05

10152025

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

0%20%40%60%80%100%120%140%

Held by Govt Held by Public

Gross Debt % of GDP

Held by Public%

Held by Govt Accts%

OMB 5/09 Budget Estimates

$Trillions
Office of Debt Management

Treasury has responded to these financing needs in predictable manner

Financing Net Flows since FY 2007

Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 

Date

Bonds Notes TIPS RegBills CMBs SFP Amounts 

FY 2007 FY 2008 

FY 2007 Deficit = $162b

FY 2008 Deficit = $455b

FY 2009 Deficit as of 4/1/
Office of Debt Management

SFP and immediate funding needs have led to higher 

$50$55$60$65$70$75$80$85$90

Mar-08 Jun-08 

Total CMBs Issued in a Fiscal Year

0

200400600800

100012001400

10/1 12/30 3/29 6/27 9/25

FY09 FY08 FY07 FY06

C

10/1/07 1/1/08 4/1/08 

CMBs S

Bills Outstanding

Total

$18

$267

SOMA

Private

$0

$400$800

$1,200$1,600

Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09

Outstanding (billions)

Federal Reserve has been buying coupons rather than bills through its Treasury Purchase Program.
Office of Debt Management

However, Treasury continues to transition to longer tincreasing net borrowing from coupons relative to bi

Net Coupons (w/ TIPs) Issued

FY 2004-2009

-$100

$0

$100$200$300$400$500$600$700

10/15

11/1

11/15

11/30

12/15

12/31

1/15

1/31

2/15

2/28

3/15

3/31

4/15

4/30

5/15

5/31

6/15

6/30

7/15

7/31

8/15

8/31

9/15

9/30

FY '04 FY '05 FY '06 FY '07 FY '08 FY '09

Net We

4/1

4/24

5/1

5/8

5/15

5/22

5/29

6/5

6/12

6/19

6/26

7/3

7/10

7/17

7/24

7/31

8/7

8/14

8/21

8/28

9/4

9/11

9/18 9/25

FY '04 FY '07 
Office of Debt Management

This has resulted in significantly higher nominal couprevious years

Net Total Coupons Issued

FY09

$643

-$100

$0

$100$200$300$400$500$600$700

10/1 12/30 3/29 6/27 
Office of Debt Management

Existing coupon securities continue to increase to labenchmark sizes in a gradual, predictable manner

Coupon Issuance in 2007-2009

1015202530354045505560

Sept-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sept-08

Oct-08

Size (billions, $)

5-Year (Monthly)
Office of Debt Management

In the second quarter of FY2009, year-over-year grownegative while outlay growth accelerated

Receipts

0

500

10001500200025003000

1-Oct 15-Nov 31-Dec 15-Feb 1-Apr 17-May 2-Jul 

$ Bil.

FY07 FY08 FY09 OMB 2/09 Guidance Proj (Smoothe

Outlays

-4500-4000-3500-3000-2500-2000-1500-1000

-500

0

1-Oct 15-Nov 31-Dec 15-Feb 1-Apr 17-May 2-Jul 

$ Bil.

FY07 FY08 FY09 OMB 2/09 Guidance Proj (Smoo
Office of Debt Management

The decline in corporate tax receipts is similar to tha– such declines generally precede lower growth in in

Rolling 12-Month Growth Rates

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

0%

10%20%30%40%

Mar-82 Mar-85 Mar-88 Mar-91 Mar-94 Mar-97 Mar-00 

Corp TaxesWH TaxesnWH Taxes
Office of Debt Management

Cash balances remain elevated and volatile

Treasury Daily Operating Cash Balance

Excluding SFPs

0

255075

100125150175

Oct Nov Dec Jan Feb Mar Apr May Jun 

$ billions

FY 2007 FY 2008 FY 2009

Dec. 15

Apr. 15

J

Daily Treasury Operating Cash Balances

0

100200300400500600700800

Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 

$ billions 

Cash Balance with SFPs
Office of Debt Management

Larger concentrations of maturities occur in the 3-yeagain at the 10-year sector

Coupons Maturing*

May 15, 2009-February 15, 2039

0

1020304050607080

15-MAY-2009

31-MAY-2009

15-JUN-2009

30-JUN-2009

15-JUL-2009

31-JUL-2009

15-AUG-2009

31-AUG-2009

15-SEP-2009

30-SEP-2009

15-OCT-2009

31-OCT-2009

15-NOV-2009

30-NOV-2009

15-DEC-2009

31-DEC-2009

15-JAN-2010

31-JAN-2010

15-FEB-2010

28-FEB-2010

15-MAR-2010

31-MAR-2010

15-APR-2010

30-APR-2010

15-MAY-2010

31-MAY-2010

15-JUN-2010

30-JUN-2010

15-JUL-2010

31-JUL-2010

15-AUG-2010

31-AUG-2010

15-SEP-2010

30-SEP-2010

15-OCT-2010

31-OCT-2010

15-NOV-2010

30-NOV-2010

15-DEC-2010

31-DEC-2010

15-JAN-2011

31-JAN-2011

15-FEB-2011

28-FEB-2011

31-MAR-2011

15-APR-2011

30-APR-2011

31-MAY-2011

30-JUN-2011

31-JUL-2011

15-AUG-2011

31-AUG-2011

30-SEP-2011

31-OCT-2011

15-NOV-2011

30-NOV-2011

15-DEC-2011

31-DEC-2011

15-JAN-2012

31-JAN-2012

15-FEB-2012

29-FEB-2012

15-MAR-2012

31-MAR-2012

15-APR-2012

30-APR-2012

31-MAY-2012

30-JUN-2012

15-JUL-2012

31-JUL-2012

15-AUG-2012

31-AUG-2012

30-SEP-2012

31-OCT-2012

15-NOV-2012

30-NOV-2012

31-DEC-2012

31-JAN-2013

15-FEB-2013

28-FEB-2013

31-MAR-2013

15-APR-2013

30-APR-2013

15-MAY-2013

31-MAY-2013

30-JUN-2013

15-JUL-2013

31-JUL-2013

15-AUG-2013

31-AUG-2013

30-SEP-2013

31-OCT-2013

15-NOV-2013

30-NOV-2013

31-DEC-2013

15-JAN-2014

31-JAN-2014

15-FEB-2014

28-FEB-2014

31-MAR-2014

15-MAY-2014

15-JUL-2014

15-AUG-2014

15-NOV-2014

15-JAN-2015

15-FEB-2015

15-MAY-2015

15-JUL-2015

15-AUG-2015

15-NOV-2015

15-JAN-2016

15-FEB-2016

29-FEB-2016

31-MAR-2016

15-MAY-2016

15-JUL-2016

15-AUG-2016

15-NOV-2016

15-JAN-2017

15-FEB-2017

15-MAY-2017

15-JUL-2017

$ Billions

10 YR IIS NOTE 10 YR NOTE 2 YR NOTE 20 YR IIS BOND 30 YR BOND 30 YR IIS BOND 5 YR IIS NOTE 5 YR NOTE 

*Based on co

In the next 5 years, 61 days will have maturities greater than $20 billion and 30 days greater than $30 billion.
Office of Debt Management

The average maturity of the marketable debt outstansecond quarter of FY 2009 as short-term issuance st

Average Maturity of Marketable Debt Outstan

404550556065707580

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 

months

Curre
Office of Debt Management

Primary dealer estimates of the FY 2009 deficit rose bthe estimate provided during the February 2009 refun

Borrowing Estimates 

Primary 

Dealers* 

Current FY 09 Deficit: 1745 Range based on average absolute forecast error** 1687-1803 Estimates as of: April 09 FY 2009 Marketable Borrowing Range*** 1655-2700

FY 2010 Marketable Borrowing Range*** 1040-1900

* Primary Dealers reflect average estimate. Based on Primary Dealer feedback on April 23, 2009.** Ranges based on errors from 2004-2008.*** Based on Primary Dealer feedback on April 23, 2009.
Office of Debt Management

The share of 2-7 year nominal coupon securities outsincreased while that of bills outstanding has flattene

Distribution of Marketable Debt Outstanding 

Fiscal Year 

0%5%

10%15%20%25%30%35%40%45%50%

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 

BILLS 2-3 YR NOTES 4-7 YR NOTES 8-10 YR NOTES 

*Net financing projections for FY 2009-2019 are based on the preliminary OMB 2010 Budget estimates released Febrspread proportionally across auctioned securities and are derived from hypothetical auction sizes. Initial sizes are basApril 17, 2009 and assume the outstanding level of bills on March 31, 2009. All projections exclude CMB issuance a
Office of Debt Management

Treasury continues to monitor developments in infla

Potential Cost / Benefit of the Most Recently Auctioned TIPS vers

Nominal Treasuries under Various Inflation Scenari

-3,000-2,000-1,000

0

1,0002,0003,0004,0005,000

-3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5

Hypothetical Inflation over Remaining Life of Security 

Cost (+) / Saving (-) versus Equivalent 

Nominal ($,mm) 

April 10-Year January 10-YearJanuary 20-Year April 5-Year

Survey o

Median Inflatio
Office of Debt Management

The Treasury repo market, after experiencing disloca

Primary Dealer Treasury Security Settlement Fails

Interest Rate Environment

0

50

100150200250300350400

1/4/95

5/4/95

9/4/95

1/4/96

5/4/96

9/4/96

1/4/97

5/4/97

9/4/97

1/4/98

5/4/98

9/4/98

1/4/99

5/4/99

9/4/99

1/4/00

5/4/00

9/4/00

1/4/01

5/4/01

9/4/01

1/4/02

5/4/02

9/4/02

1/4/03

5/4/03

9/4/03

1/4/04

5/4/04

9/4/04

1/4/05

5/4/05

9/4/05

$ Billions

Weekly Effective Fed Funds 

Average Daily Fails to Receive

Source: FRBNY FR2004 Settlement Fails Data 
Office of Debt Management

Volatility has remained range bound since the annoupurchases of Treasuries

10-Year Treasury Yield Volatility

(annualized, 5-day window) 

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%

11/7/2008

11/12/2008

11/17/2008

11/22/2008

11/27/2008

12/2/2008

12/7/2008

12/12/2008

12/17/2008

12/22/2008

12/27/2008

1/1/2009

1/6/2009

1/11/2009

1/16/2009

1/21/2009

1/26/2009

1/31/2009

2/5/2009

2/10/2009

2/15/2009

2/20/2009

2/25/2009

Yield

Yield Vol (5-da

RHS

10-Year CMT Yield LHS

Economic Stimulus Signed
Office of Debt Management

DV01 has been increasing steadily with declining yieauction sizes

Changing DV01 Risk by Month

0

102030405060708090

100

August 2008 September

2008

October 2008 November 2008 December 2008 January 2009 February 2

Issuance DV01 ($ millions)

2-Year 3-Year 5-Year 7-Year10-Year 30-Year Total

Weekly Average DV01 of Nominal Coupon Auctions

(10-Year Equivalents)

0

10203040506070

9/30/08

10/7/08

10/14/08

10/21/08

10/28/08

11/4/08

11/11/08

11/18/08

11/25/08

12/2/08

12/9/08

12/16/08

12/23/08

12/30/08

1/6/09

1/13/09

1/20/09

Billions
Office of Debt Management

The current auction calendar has addressed recent cneeds

Security Recent Size, $ B4-week, 13-week, and 26-week bills 20, 29, 28 52-week bills 25 2-year note 40 per month 3-year note 35 per month 5-year note 35 per month 7-year note 26 per month 10-year note 57 (21 initial + 18 

2nd reopenin

30-year bond 25 (14 initial + 11 5-year TIPS 14 (8 initial + 6 re10-year TIPS 14 (8 initial + 6 re20-year TIPS 14 (8 initial + 6 reCash Management Bills 34 (average size (including SFP)

Announced through 4/23/09
Office of Debt Management

The calendar for the recent quarter reflects the frequTreasury accesses the capital markets

Supplementary Financing Bills Applied for Q2 F

1 aucti

Monday Tuesday Wednesday Thursday Friday 2 aucti

2 3 4 5 6 3 aucti9 10 11 12 13 4 aucti

16 17 18 19 20 Holiday23 24 25 26 27 Early C

Availa

Monday Tuesday Wednesday Thursday Friday 

2 3 4 5 69 10 11 12 13

16 17 18 19 20

23 24 25 26 27

30 31

Monday Tuesday Wednesday Thursday Friday

1 2 3

6 7 8 9 10

13 14 15 16 17

20 21 22 23 24

27 28 29 30 31

April

February

March

Specia
Office of Debt Management

In recognition of both short, intermediate, and long teneeds, as well as recent guidance provided by the OfManagement and Budget and other agencies, what aissuance, if any, should Treasury make in consideratithese horizons at this time in terms of adjustments to or instruments? 
Treasury Borrowing Advisory Co

Presentation to Treasury

April 28, 2009
Deficits and sovereign debt supply are rising in several G

Projected gross issuance 2009* versus projected gannual gross issuance av

* Gross issuance includes only issued with original maturity gavg. issuance is average over 2

Central government budget balance as a percentage of GDP; negative numbers indicate deficit; %

Source: OECD December 2008 Economic Outlook

-15-10

-5

05

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Canada France Germany ItalyJapan UK US

TBAC

0

500

100015002000

Canada

Italy

France

Germany

Proj. grosProj./ histo

$bn
Aggregate flows into equity and bond mutual funds

Quarterly flows into equity mutual funds versus taxable bond mutual funds; $bn

Source: AMG Data Services

•Except for 4Q08, inflows into taxable bond funds have stayed positive, while eqhave seen outflows

-80-60-40-20

0

204060

1Q08 2Q08 3Q08 4Q08 1Q09

Equities Tax able bonds

TBAC
y = -1.1607x + 96.96

R2 = 0.802

0

200400600800

10001200

-800 -600 -400 -200 0

Aggregate foreign inflows into US assets will likely fall (bupositive) with a shrinking trade deficit, but asset substitubeen offsetting the impact on Treasuries

Annual total net purchases of US securities by foreigners versus annual trade surplus (1992-2008); $bn Percentage share by asset class 

USD assets by foreigners (%-pts) versus 2008 

Annual trade surplus

 A shrinking trade deficit is likely to lead to smaller (but still positive) aggregate inflows - w

deficit of $475bn in calendar year 2009, versus $721bn on average over the 2005-2007 peri

 However, a substitution effect into Treasuries is evident so far

3⁄4 TIC data on transactions in coupon Treasuries suggest that foreigners bought $316bn Tre

$245bn on average in 2005-2007

3⁄4 Year-to-date Fed custody holdings data of Treasuries have increased by $133bn, while th

decreased by $8bn

3⁄4 TIC data show over January-February 2009, foreigners bought $32bn Treasuries and sold 

US corporate bonds, and $4bn US stocks

Source: Treasury International Capital System Source: Treasury International Ca

TBAC

-20%-10%

0%

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

Tsy Agy C
Within US fixed income markets, rising Treasury issuance other markets will cause shifts in the composition of combenchmark indices ... 

US index components outstanding for a major benchmark aggregate index as of 3/31/09; projected net issuance in Apr-Dec 2009; projected Dec 2009 outstanding levels, and projected Dec 2009 weightings

* 3/31/09 weighting uses market values. 

•The relatively high Treasury issuance over April-December 2009 should cause Uabout 34% of the index, from about 31% currently •USTs could grow to an even higher fraction of the index if commonly used benctheir methodology to adjust for the Fed’s purchases (especially of MBS)

•In this case, USTs could grow to approximately 36% of the index

3/31/09 

weighting*

3/31/09 

outstanding 

($bn)

Proj. Apr-Dec 

2009 issuance

Proj. 2009 

outstanding 

($bn)

Proj. 2009 

weightings

TOTAL 100% 9,320 10,965 100%US MBS 42% 3,946 400 4,346 39%US Treasuries 31% 2,614 1,135 3,749 34%US Credit 19% 1,944 131 2,074 19%US Agencies 6% 520 -20 500 5%EM External Debt (USD) 2% 150 0 150 1%EM Credit (USD) 1% 146 0 146 1%

TBAC
Mutual funds,

2158.6, 13%

Foreigners, 

7372.7, 46%

Banks, 2465.9,

15%

Insurance 

companies, 

2360.7, 15%

Pension funds,

1765.2, 11%

Mutual fundsForeignersBanksInsurancecompaniesPension funds

... and passive investor reallocations should cause inflows Treasuries

US fixed income assets held* by various investors as of December 2008; $bn

* Includes Treasury securities, U.S. government agency securities/MBS, corporate and foreign bonds, and municipal securities and loansSource: Federal Reserve Flow of Funds Accounts

•Approximately 40% of the investor universe (mutual funds, pension funds and insurance 

estimated $6.5Tn in fixed income assets) may be assumed to manage to a benchmark

•Other countries’ sovereign issuance is likely not a competing factor for these inve

•We estimate $225bn in Treasury market inflows from these investors due to index comp

•Such demand could be higher (about $380bn) if common benchmark indices are re

purchases, especially of MBS

Estimated net demand for asset classes from indexed the shifting composition omarket (not accounting fo

-200-100

0

100200300

MBS Treasuries 

TBAC
Expected net Treasury supply versus a breakdown of expsources of demand

Projected net issuance in coupon Treasuries over April-December 2009 versus expected incremental demand from various sources; $bn

* Assumes run rate of purchases over January-February 2009 by foreigners remains the same over April-December 2009. Based on TIC flows data.** We assume that benchmark indices will not adjust for Fed purchases. We then use the estimated net reduction in MBS and Agency debt exposure from index investors to calculate the MBS/Agency debt displaced from nonindexed portfolios. Finally, we assume that this displaced cash from nonindexed portfolios will remain allocated to US Fixed Income, and reinvested in Treasuries and Corporates (including FDIC guaranteed debt) in proportion to the expected gross issuance in those markets

Expected net issuance in coupon Treasuries over Apr-Dec 2009 1135

Fed purchases over Apr-Dec 2009 258Index-related demand 224Foreign demand* 145Reinvestment demand from MBS/Agy debt sales** 352

Remainder 157

TBAC
Issuance trends for quasi-government debt markets 

Amt outstanding by issuer as of Mar’08, USD bn Projected gross issuance, Jan-Dec’

* Gross issuance includes only londebt with original maturity great

Historical 5-year annual average gross* issuance versus projected 2009 gross issuance/ 5-year annual gross issuance average 

Other 

sov ereign 

guaranteed 

USD debt, 

67 

TLGP, 231 

FHLMC, 930 

FNMA, 865 

US Tsy , 

6,241 

KFW, 115 

EIB, 105 

FHLB, 1,135 

TBAC

-500

0

500

100015002000

US Tsy

FNMA

FHLMC

FHLB

EIB

$bn

Total projected Ag

issuance 

0

200400600800

1000

US Tsy

FNMA

FHLMC

FHLB

EIB

KFW

1.01.52.02.5

Av g annual gross issuance 3.0Proj/ historical av g. issuance

$bn
CB

13%

BT

34%

AM

37%

Other

3%

CORP

2%

HF

3%

PENS

3%

INS

5%

Estimated composition of the investor universe participating in recent issues in the FDIC market, by investor typeEstimated composition of the investor universe participating in recent issues in the FDIC market, by investor type

Estimated composition of demand for quasi-government d

Domestic

57%

Estimated domestic/international split amparticipating in recent issues in the FDIC mEstimated domestic/international split amparticipating in recent issues in the FDIC m

Asset Manager (AM)Bank Treasury (BT)Central Bank (CB)Corporate (CORP)

Hedge Fund (HF)Insurance Company (INS)Pension Fund (PENS)

 FDIC-guaranteed debt is treated as a sub-sector of government debt in benchma

classes would thus have an incentive to participate

 Anecdotal evidence regarding investor participation in the FDIC-guaranteed mar

classes of Treasury investors are active buyers of this paper

TBAC
Long term deficit and issuance projections

US cyclically adjusted budget deficit; % of potential GDP

-12-10

-8-6-4-2

02

60 65 70 75 80 85 90 95 00 05 10

LT-Av g. 

Fiscal year budget deficit versus fiscal year gross issuance and projections for 2009-2019*; $bn

* CBO budget forecasts are used. To project gross issuance, we assume that the coupon auction sremains unchanged except for an additional bond reopening, that bills outstanding reverts to and constant 25% of total debt outstanding, and that gross issuance sizes are scaled to meet the remafunding needs net of bill issuance. Issuance projections do not account for returns from financial acquired via TARP.

-500

0

500

1000150020002500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

FY budget deficit FY gross issuance

Projection

TBAC
The impact of improving economic conditions and rising rappetite needs to be considered in the future

Stylized listing of factors currently supportive of USTs, and estimated impact going forward when the economy begins to improve

TBAC
-1.0-0.5

0.00.51.0

Mon Tue Wed 

Av erage tail 

Av erage in

(inv ert

Auction timing – avoid Mondays and Fridays

•There is some evidence that auctions held on Mondays perform poorly relative ton other days of the week

•Typical tails have been larger, and indirect bids have been lower

•The experience with Monday auctions suggests that auctions held on Fridays coor worse

• Asian investors are likely to be less active in Friday auctions given the tim

•We recommend Treasury avoid Mondays and Fridays to the extent possible give

constraints

Distribution of Treasury auctions* by dayof-week; 

* Uses Treasury auction data from May 2003 to March 2009. 3-year and 7-year sectors were exdue to sparse history. ** Auction tails calculated as difference between the pricing yield and the 1PM WI yieldSource: Bloomberg

2Y 5Y 10Y 30Y

Mon 4 0 0 0

Tue 13 5 4 0

Wed 50 38 13 0

Thu 4 27 32 13

Fri 0 0 0 0

Total 71 70 49 13

Average auction tail** and % indthe 2-year note separated by dbp 

TBAC
The impact of Fed purchases – demand begets supply

•Given the numerous high-frequency events impacting markets, it is difficult to iof Fed purchases•That said, we find that the closest benchmark to the purchase sector has cheap

wings on the day of the operation in 5 out of 8 operations in April•This impact has been greater in purchase operations with lower acceptance rate

•In effect, purchase operations may be acting as effective sources of supply 

Change in yield residual* on the day of a purchase operation versus the percentage of total offers accepted by the Fed in the purchase operation; bp %

* Yield residual defined as the 6-month residual of the yield of the closest benchmark to the purchase sector, regressed against yields on the wings. Wings refer to the nearest surroundinbenchmark points on the curve except for the 10-year, where wings refer to 2s and 30s.

TBAC

-4-2

0246

01-Apr

02-Apr

06-Apr

08-Apr

13-Apr

14-Apr

21-Apr

23-Apr

0%10%20%30%40%50%

1D chg in y ield residual Fed purchase accepted ratio

(inv erted ax is)
The Supplemental Financing Program

Supplemental Financing Program amount outstanding; $bn

100200300400500600

Sep 08 Nov 08 Dec 08 Jan 09 Mar 09 Apr 09

TBAC
Advantages and disadvantages of Fed bills versus SFP

Fed bills SFP

Preserves the separation between 

fiscal and monetary policy

Uses existing operational and market 

resources

Provides the Fed with the flexibility of 

using an additional reserve 

management tool, when and if needed Concentrates liquidity in one market

Greater transparency regarding the 

US Government's fiscal liabilities and 

term structure versus monetary policy 

actions

Provides a mechanism to make the 

Fed's reserve creation portable beyond 

the banking system

Provides a mechanism to make the Fed

reserve creation portable beyond the 

banking system

Requires legislation authorizing the 

Fed to issue debt

Requires legislation to exempt SFP 

amounts from the debt ceiling

Splits liquidity across two markets

May be seen as compromising the 

separation between fiscal and monetar

policy

Advantages

Disadvantages

TBAC
Treasury Borrowing Advisory Committee QuCommittee Charge – April 28, 2009

Credit Market ConditionsThe Treasury, Federal Reserve, and FDIC have undactions to foster the robust functioning of credit mdiscuss how these actions have impacted credit madditional steps may be considered, and the impliccurrent or additional steps on the Treasury market
Date Event12-Dec-07 28-day TAF announced7-Mar-08 Single-Tranche 28-day OMO announced11-Mar-08 TSLF announced16-Mar-08 PDCF announced8-Aug-08 TOP announced11-Aug-08 First 84-day TAF19-Sep-08 AMLF launched 29-Sep-08 Temporary Money Market Guarantee Program announced & Forward T14-Oct-08 Capital Purchase Program announced27-Oct-08 CPFF is operational 21-Nov-08 TLGP announced (first issuance 1wk later) 25-Nov-08 TALF announced 5-Jan-09 Fed begins MBS purchases 10-Feb-09 PPIP announced13-Feb-09 Obama Stimulus 18-Mar-09 QE 19-Mar-09 TALF start 

Timeline of Policy Initiatives from the Fed an
LIBOR/OIS Spreads Sustain Recent Tighten

Fed Funds Target (RHS) Spot 3mL - Spot 3m OIS (LHS) Spot 1mL - Spot 1m OIS (LHS)

Libor/OIS Spreads vs FF Target

Libor/OIS spread (bps)

0

20406080

100120140160180200220240260280300320340360380

Jul Oct Jan Apr Jul Oct 

9Jun2007 

2007 2008 

AMLF launched

Temporary Money Market Guarantee Program anncd& Forward TAF program anncd

28-day TAF anncd

First 84- day TAF

Single-Tranche 28-day OMO anncd

TSLF anncd

PDCF anncd TOP 

anncd

Capital PuProgram a
0

100200300400500600700800900

10001100120013001400

Jul Oct Jan Apr Jul Oct 

20Jun2007 

2007 2008 

AMLF launched

Temporary Money Market Guarantee Program anncd& Forward TAF program anncd

28-day TAF anncd

First 84- day TAF

Single-Tranche 28-day OMO anncd

TSLF anncd

PDCF anncd

TOP anncd

Capital Purchase Program anncd

Bank CDS

GS 5y CDS CITI 5y CDS BOA 5y CDS MS 5y CDS JPM 5y CDS
0

200400600800

1000120014001600180020002200

Jul Oct Jan Apr Jul Oct 

20Jun2007 

2007 2008 

AMLF launched

Temporary Money Market Guarantee Program anncd& Forward TAF program anncd

28-day TAF anncd

First 84- day TAF

Single-Tranche 28-day OMO anncd

TSLF anncd

PDCF anncd TOP 

anncd

Capital PurcProgram ann

Credit Index Spreads

07-1 AAA CMBX 07-1 AAA ABX IG 5y HY 5y
0

100200300400500600700

Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 

Credit Card ABSPrime Auto Loan ABSFFELP Student Loan ABS

TLGP anncd (first issuance 1wk later)

Temporary Money Market Guarantee Program anncd& Forward TAF program anncd

28-day TAF anncd

First 84- day TAF

Single-Tranche 28-day OMO anncd

TSLF anncd

PDCF anncd

TOP anncd

Capital Purchase Program anncd

ABS Spreads
-10

0

102030405060708090

100110120130

Jul Oct Jan Apr Jul Oct 20Jun2007 

2007 2008 

First Last

High Low

Mean Std

4.1424 12.3815

20Nov08 18Sep07

127.6811 -2.2476

36.8213 26.3472

CPFF is operational

AMLF launched

TemMonGuaPro& Fprog

28-day TAF anncd

First 84- day TAF

Single-Tranche 28-day OMO anncd

TSLF anncd

PDCF anncd

Capital Purchase Program anncd

Mortgage Current Coupon OAS

TOP anncd

ABS Spreads Mortgage OAS
Gross Issuance of Auto, Credit Card + Studen

* Annualized issuance since TALF program started

0

50

100150200250

2000 2001 2002 2003 2004 2005 2006 2007 
Gross Issuance of Home Equity Loan ABS ($ 

0

100200300400500600

2000 2001 2002 2003 2004 2005 2006 
Gross Issuance of Non-Agency MBS ($ bn)

0

100200300400500600700

2000 2001 2002 2003 2004 2005 2006 
Gross Issuance of CMBS ($ bn)

0

50

100150200250

2000 2001 2002 2003 2004 2005 2006 
US Investment Grade Corporate Debt Issuanc

-

20406080

100120140160

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

($B)
High Yield Corporate Debt Issuance ($ bn)

05

1015202530

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

p

($B)
Monthly Guaranteed & Non-Guaranteed Financial Issu

-

102030405060708090

100

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

($B)

Non G overnm ent G uaranteed Governm ent Guarante
Monthly Equity Market Issuance (IPOs and Secondar

05

10152025

Jan-04

Mar-04

May-04

Jul-04

Sep-04

Nov-04

Jan-05

Mar-05

May-05

Jul-05

Sep-05

Nov-05

Jan-06

Mar-06

May-06

Jul-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-07

Sep-07

($ B)

Total Issuance ex Financials Financial Issuance
Improved Markets

•Libor Æ Capital Purchase Program and TLGP•ABS Æ TALF•Mortgage basis Æ Fed purchases•Additional steps must target assets that have not norm•Additional steps must target economic growth
ABS RMBS CMBS

Investm

Grad

Corporate 

Pre Lehman 10-25% 20-30% 10-20% 5-15% 

Post Lehman 15-30% 30-50% 20-40% 20-30Current 20-40% 30-50% 20-40% 10-20

Spread Tightening with Pre-Lehman Haircut Levels

25-75 

bps

150-250 

bps

200-300 

bps

25-75 

bps

If volatility continues to remain low, haircacross the board in 1-2 months

Haircut Grid
Cash Assets on Commercial Bank Balance S
Cash Held By Individuals ($ bn)
VIX
Government Money Market Fund Assets Outs

0

200400600800

1,0001,2001,4001,6001,800

Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 
Real Net Bank Loan Growth (billions of 2009 

-200-100

0

100200300400500600700

1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 
Real Bank loan Growth Following Recession 
ISM Leads Real Bank Loan Growth Out of Re

35404550556065

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 

Average ISM Manufacturing Index after Start of RecessionAverage Net Change in Real Bank Loan Growth after Star
US Debt to GDP with Recessions Shaded

Oil Bust

High Rate Bust

S&Bu