Treasury Borrowing Advisory 

Quarterly Refunding 

July 29, 2003
Financing Projectio
April - June 2003 July - Sept. 2003

(Projected) (Actuals) (Projected)

Deficit Funding (Def + / Surplus -) * 17 18 138

Means of Financing

Change in Cash Balance -32 -17 -15

Compensating Balances -18 -12 28

Net Non-Marketable Financing -5 -9 16

Net Marketable Financing 79 60 104

Other -6 -4 5

Net Marketable Financing 79 60 104

Bills -27

Nominal Notes 91

IIS 0

Bonds (20-yr) -3

Notes:

Starting Cash Balance 13 13 30

Ending Cash Balance 45 30 45

* Includes budget results, direct loan activity, changes in accrued interest and checks outstanding and minor miscellaneous transactions.

Note: Totals may not add due to rounding

TREASURY FINANCING REQUIREMENTS

Department of the Treasury

Office of Market Finance July 28, 2003-1

$ Billions
FINANCING RESIDUALS GIVEN CURRENT IS

-300-200-100

0

100200300400500600700

2003 2004 2005 2006 

Fiscal Year

$ billions

FY04 OMB MSR Deficit Forecast

Deficits plus 

Avg. Absolute Error

Deficits minus Avg. Absolute Error

Bars Indicate Additional Financing Required In Given Year For Different Deficit Outcomes
BILLS AS A PERCENTAGE OF TREASURY'S MARKE

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

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1

A

Deficit Fo
2004 2005 2006 2007 2008 2009 2010 2011 2012

0100200300400500600700800

MATURITY PROFILE

Outstanding Treasury Marketable Coupon Securities

$Bil.

Calendar Year

1

Note: Where applicable, maturities represent first call date.

1 Issued or announced through July 25, 2003.

1st Quarter

2nd Quarter3rd Quarter4th Quarter

 Projected
THE AVERAGE MATURITY 

OF TREASURY'S MARKETABLE DEBT AND 

2030405060708090

100

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 20

Months

'04 Budget Forecast/Quarterly 3s, 5s, and 10s'04 Budget Forecast/Quarterly 3s, Monthly 5s, Reopen MSR Forecast/Quarterly 3s, Monthly 5s, Reopen 10s

1/ The average maturity of issuance is the average maturity eventually achieved if nominal issuance is hel

AVERAGE MATURITY 

OF MARKETABLE DEBT

AVERAGE MATURITY OF ISSUANCE 

(4 quarter moving average)
Changes to Auction Ca

Around FOMC Mee
Uncertainty Around FOMC Meetings Expensiv

Actual Minus Expected Premium for 2-Year Note

-10

-8-6-4-2

02468

10

Dec-92 Sep-93 Jun-94 Mar-95 Dec-95 Sep-96 Jun-97 Mar-98 Dec-98 Sep-99 Jun-00 

bps

auction held same 

day as FOMC 

average difference from expected for 

auctions held same day as FOMC meetings

*The expected premium is calculated given the yield volatility in the 2-year sector, the size of the auction, Including a variable to control for auctions held on the same day as FOMC meetings indicates a cost for t
Treasury’s Issuanc

Long-Term Securit
Treasury’s Debt Manag

Low borrowing cost over time

3⁄4Regular pattern of issuance3⁄4Predictable issuance sizes

Flexibility

3⁄4Need ability to raise and pay-dow
Strategy Not Affected 

• Current interest rates • Annual deficit • Short-term fluctuations in d
Implementation

• Auction dates known in advance 

3⁄4Reduces investor uncertainty

• Changes in auction sizes are transp

3⁄4Allows intermediaries to adjust to chan

• Auction sizes large

3⁄4Assures investors of good liquidity

• Market consultation

3⁄4Reduces investor uncertainty
Size of Operations Hard 

• $3.7 trillion raised in 176 auctions in • $171 billion paid in net interest in 200

– represented 8.5% of Government expen

• $462 billion in Treasuries are traded • $3.4 trillion in marketable debt outsta

– represents approximately a quarter of U
Low Cost Over Time

Longer Maturities More Expensive 

Difference in Realized Cost 

Spread Between 10-Year Notes and 1-Year Bills Rolled 

-300-200-100

0

100200300400500600700

1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1

basis points
Low Cost Over Time

10yr-30yr Spread Has Widen As Rate

Spread Between the 30-Year Bond and the 10-Y

-80-60-40-20

0

20406080

100

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 

bps
Low Cost Over Time

Requires a Diversified Debt Po

Spread debt across maturities 3⁄4 Reduce event risk3⁄4 Diversify investor base3⁄4 Improve cash management3⁄4 Reduce operational risk3⁄4 Engender regular and predictab
Low Cost Over Time

Treasury Has a Diversified Debt 

Distribution of Debt by Security 

0%5%

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

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 20

BILLS 2-3 YR NOTES 4-7 YR NOTES 8-10 YR NOTES B
Annual Bond Issuance 

Nominal Amounts and as a Percentage of Annual Is

0%1%2%3%4%5%6%7%

1980 1982 1984 1986 1988 1990 1992 1994 1996 

percent

Nominal Bond Issuance (RHS)

% of Annual 

Issuance (LHS)

Low Cost Over Time

Bond Issuance Low But Impact Grows 
Low Cost Over Time

Bonds Currently 17% of Treasury’s Ma

Distribution of Treasury's Marketable Debt Outstandin

As of June 30, 2003

0%5%

10%15%20%25%30%

Bills 2-year 3-year 5-year 10-year 10-year IIS 20-yea
Low Cost Over Time

Issuing Bonds Regularly Has Been 

Bonds as a Percentage of Marketable Debt and Inte

5%

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

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 

Interest on Bonds as a Percentage of

Interest Expenses on Marketable Debt

NomPerc
Low Cost Over Time

Maturing Debt and Issuance Stable w

Annual Issuance as a Percentage of GDP a

Percentage of Debt Maturing in 12 Month

8%

10%12%14%16%18%20%

Dec-80 Dec-82 Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 

Issuance/

GDP

Issuance as a % of GDP (L

% of Debt Maturing in 12 Months (RHS)
Weekly Receipts Minus Expenditur

-50-40-30-20-10

1020304050

Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Ju

$ Billions

*Expenditures exclude debt redemptions and unclassified withdrawals.

Flexibility: 

Fiscal Needs Volatile
Average Absolute Federal Budget Forecast 

1997 - 2002

0

20406080

100120140160180

14 months 11 months 8 months 5 months 

months until end of fiscal year

$ billions

CBOOMBPrimary Dealers

Flexibility:

Future Financing Requirements 
Year Over Year Change in Total Annual Is

-100

-50

0

50

100150200250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 

$ billions

Bills2-Year5-year10-year30-year

* Nominal securities only. No inflation-indexed securities included.

Flexibility:

Frequent Auctions of Shorter M
Flexibility:

Longer Maturities Unsustainable Dur

Estimated Average Auction Size in 5 Years1 

Based On Budget Forecast At The TIme

05

101520253035

1998/2003 1999/2004 2000/2005 2001/2006 2002/200

Year of Forecast/Projected Year

$ billions

Bills 2YR 3YR 5YR 10YR 30

1/ Issuance is based on securities being issued at time of forecast and includes SOMA.
Flexibility:

Weight Issuance Towards Shorter 

• Financing needs are volatile and unc• Investor base for long-term debt is ill

frequency auctions

• Long-term debt hampers regular and 

issuance in improving fiscal environm
Conclusions

• Achieving the lowest cost over time 

regular and predictable issuance of portfolio of debt

• Weight issuance towards shorter ma

– Less costly– More flexible (i.e., frequent issue/matu

• Bonds

– Expensive

• Risk premium• Commitment to regular issuance in all rate 

a large effect on Treasury’s portfolio of outs

– Inflexible

• Infrequent auctions• Restricts other issuance in an improving fis

– Unnecessary for managing risks