Comments on: “The Aggregate Demand for Treasury 

Debt” by Krishnamurthy & Vissing-Jorgensen

David Greenlaw, Chief U.S. Fixed Income Economist

November 18, 2011

First Annual Roundtable on Treasury Markets and Debt Management
M O R G A N S T A N L E Y R E S E A R C H

2

November 2011

Adding the Latest Observations to Figures 1A and 1B ...

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

2010

2011

2009

2008

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

Corporate Bond Spread and Government Debt Aaa 

– Treasury Spread

Debt/GDP

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Corporate Bond Spread and Government Debt

Note: Dashed lines represent 2008-2011 values

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

Debt / GDP

(1 = 100%)

Aaa – Treasury Spread 

(Percent)

Year
M O R G A N S T A N L E Y R E S E A R C H

3

November 2011

Same Story If We Exclude Fed Holdings

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

2010

2011

2009

2008

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

Corporate Bond Spread and Government Debt 

without Fed Holdings Aaa 

– Treasury Spread

Non-Fed Debt/GDP

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Corporate Bond Spread and Government Debt 

without Fed Holdings

Note: Dashed lines represent 2008-2011 values

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

Debt / GDP

(1 = 100%)

Aaa – Treasury Spread

(Percent)

Year
M O R G A N S T A N L E Y R E S E A R C H

4

November 2011

Adding the Latest Observations to Figures 2A and 2B

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

2010

2011

2009

2008

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.2 0.4 0.6 0.8 1.0 1.2 1.4

Money and Government Debt Non-M1 M2 / GDP

Debt/GDP

0%

20%

40%

60%

80%

100%

120%

140%

34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Money and Government Debt

Percent

Note: Dashed lines represent 2008-2011 values

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

Debt / GDP

Non-M1 M2/GDP

Year

Percent
M O R G A N S T A N L E Y R E S E A R C H

5

November 2011

Excluding Fed Holdings Doesn’t Resolve the Structural Shift 

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

2010

2011

2009

2008

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.2 0.4 0.6 0.8 1.0 1.2 1.4

Money and Government Debt without Fed 

Holdings Non-M1 M2 / GDP

Non-Fed Debt/GDP

0%

20%

40%

60%

80%

100%

120%

140%

34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Money and Government Debt without Fed 

Holdings

Percent

Note: Dashed lines represent 2008-2011 values

Source: Federal Reserve, US Treasury, Historical Statistics of the United States, 

Bureau of Economic Analysis, Morgan Stanley Research

Debt / GDP

Non-M1 M2/GDP

Year

Percent
M O R G A N S T A N L E Y R E S E A R C H

6

November 2011

TIPS as a % of Total Treasury Securities Outstanding

Percent

The US Treasury Securities Market ($Bil)

Are all Treasury Securities “Money”?

Source: U.S. Treasury Dept Source: Federal Reserve Flow of Funds

5

6

7

8

9

10

11

04 05 06 07 08 09 10 11

Amount Outstanding

Holdings, by Sector:

Foreign

Federal Reserve

Insurance / Pension

Household

S&L Government

Mutual Funds / ETF’s

Money Market Funds

Commercial Banks

Dealers

All Other

2011 Q2

 9528

 4438

 1620

 1092

 650

 484

 369

 342

 261

 62

 210
M O R G A N S T A N L E Y R E S E A R C H

7

November 2011

Foreign Ownership Share of Outstanding Treasuries

Percent

Foreign Investors Play an Important Role in the Treasury Market

Source: Federal Reserve Flow of Funds (includes Fed holdings)

0

10

20

30

40

50

60

60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11

Note: Data as of June 2010. Excludes Fed holdings.

Source: Morgan Stanley calculations based on US Treasury TICS data.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Bills 0-2 Yr 2+-5 Yr 5+-10 Yr 10+ Yr

Domestic Owned

Foreign Private Owned

Foreign Official Owned

Ownership of Treasuries, by Maturity

Billions of Dollars
M O R G A N S T A N L E Y R E S E A R C H

8

November 2011

Taking a Look at Debt Management on a Consolidated Basis

30

40

50

60

70

80

90

100

110

1980 1985 1990 1995 2000 2005 2010

Average Maturity of Privately-Held Treasury Debt

Months

Note: Gray points represent 2011 and 2012 estimates

Source: US Treasury Dept and Morgan Stanley calculations

30

40

50

60

70

80

90

100

110

1980 1985 1990 1995 2000 2005 2010

Average Maturity of All Marketable Treasury 

Debt Outstanding and the Fed’s Holdings

Months

Note: Gray points represent 2011 & 2012 estimates

Source: US Treasury Dept, Federal Reserve Bank of New York, and Morgan 

Stanley calculations

Treasury

Fed
M O R G A N S T A N L E Y R E S E A R C H

9

November 2011

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