Presentation to the Treasury 

Advisory Committee

U.S. Dep

Off
Office of Debt Management

Intermediate to longer-term trends to cons

 Market considerations Portfolio considerations  Economic outlook Non-marketable borrowing Potential legislative changes
Office of Debt Management

Year to date tax receipts have grown versus last year

Individual and Corporate Tax Receipts 

Fiscal Year to Date

0

200400600800

100012001400

Oct Nov Dec Jan Feb Mar Apr May Jun 

$ billions

FY07 Revenue YTD on pace tosurpass last year's total fiscalyear revenues
Office of Debt Management

Year to date outlay growth has been rising at a slower pace than 

Total Outlays 

Fiscal Year to Date

0

500

10001500200025003000

Oct Nov Dec Jan Feb Mar Apr May Jun 

$ billions

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

FY07 OutlaysYTD smallest year-overyear growth rate in recent years
Office of Debt Management

OMB is expecting continued improvement in the bud

Projected Budget Results

(+ Deficit/- Surplus)

-100

-50

0

50

100150200250300

2006 2007 2008 2009 2010 

$ billions
Office of Debt Management

Net SLGS Issuance in FY 2007 may set a record

State and Local Governments (SLGS)

0

102030405060

$ Billions

Gross IssuesRedemptions

-10

-5

05

1015202530

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 

$ Billions

Net SLGs
Office of Debt Management

Given current issuance amounts and maturity patterns, TIsecurities are projected to be the sources of financing as f

Cumulative All TIPS Cash Raised

-$40-$20

$0

$20$40$60$80

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Yr-to-Date Amt

Cumulative 1

-$40-$20

$0

$20$40$60$80

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Yr-to-Date Amt

Cumulative 30YR Cash Raised

-$40-$20

$0

$20$40$60$80

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Yr-to-Date Amt
Office of Debt Management

Future financing and portfolio conside

 Market participants suggest that current auction s

coupon securities are at or near minimum sizes to 

 Outstanding bills have been essentially flat Treasury continues to see strong receipts The deficit has been cut in half ahead of schedule

forecasts a balanced budget by 2012 

 Should additional financing become necessary:

– Increased bill issuance could raise an additiona– Increased coupon issuance could raise and add
Office of Debt Management

How low can they go?

Announced Amount

$10 billion$16 billion

$13 billion 

$13 billion

$8 billion

$9 billion$8 billion

$7 billion

$9 billion$6 billion$8 billion$7 billion

Minimum Announced Coupon Auction A

Based on Current Patterns

A

Aug

Ju

Dec

M

Ju

Security

30-Year Bond

10-Year Note

5-Year Note 

-Reopening

3-Year Note

2-year Note

5-Year TIPS

-Reopening

20-Year TIPS

-Reopening

10-Year TIPS

-Reopening
Office of Debt Management

 In light of intermediate and longer-term fiscal trends a

recent economic and market conditions, what advice Committee give in terms of Treasury’s debt issuance? 
1

Treasury Borrowing Advisory Co

Presentation to the Treasu

Trends in International Invest

May 1, 2007
2

Foreign Purchases Roughly Cover New Trea

Trends and Flows in Capital Markets

-$300-$200-$100

$0

$100$200$300$400$500

1991 1993 1995 1997 1999 2001 2

billions

Net foreign purchases of US

Treasury bonds, notes, and bills

(12-month total)

Marketable Treasury

securities outstanding 

(12-month change)

Source: US Treasury 
3

Trends and Flows in Capital Markets

Foreign Purchases: Rising Share of New Suppl

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

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20

Foreign net purchases of US Agency/corporate debt as 

share of newly originated US net private borrowing* 

*Net foreign purchases of US Agency and c

increase in US nonfinancial nonfederal debt ou

Sources: US Treasury, Federal Reserve
4

Trends and Flows in Capital Markets

Foreign Holdings of US Debt Outstanding Sm

0%

10%20%30%40%50%60%

1990 1992 1994 1996 1998 2000 20

Foreign holdings of Treasuries as share ofTreasuries outstanding

Foreign holdings of Tre

Agency, and Corporate 

share of total non financ

outstanding

Sources: US Treasury, Federal Reserve
5

Trends and Flows in Capital Markets

Foreign Inflows Into US Equity Markets Still R

Net Foreign Purchases of US Long Term Securitie

$ billions

Treasury Agency Corporat

2004 916 352 226 310 2005 1012 338 219 372 2006 1138 198 290 501 

By Instrument Total

Source: US Treasury 
6

Trends and Flows in Capital Markets

-$5

$0$5

$10$15$20

1991 1993 1995 1997 1999 2001 200

12-month averages, billions

US Equity Outflows Trending High

Foreign purchases of US e

US purchases of foreign equities, net

Source: US Treasury 
7

Benefits to the U.S.

US Enjoys Healthy Investment Despite Lo

12141618202224

1980 1985 1990 1995 2000 

DomesticSavingsDomesticInvestment

Averages 

since 1980

% of GDP

Source: International Monetary Fund, Bank of America calculations
8

Net Investment Position

US Current Account Deficit Implies Growing 

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

-$500

$0

$500

1983 1985 1987 1989 1991 1993 1995 1997 1999 2

Current account balance 

(annual flow of borrowing)

Net international investment position

(stock of net foreign debt)

=

US holdings of foreign assets

minus

foreign holdings of US assets

Source: US Commerce Department 

billions
9

Net Investment Position

US Registers Small Deficit on International Inv

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

-$500

$0

$500

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

US Net Int'l Investment Position ($bn, lhs)

US Int'l Income Balance ($ bn, rhs)

2006 net payment of interest, 

dividends & earnings = $7 bn

(right axis)

2005 net foreign debt = $2,546 bn

(left axis)

billions

Source: US Commerce Department 
10

Net Investment Position

US Foreign Debt Within Range for Major E

-100%

-50%

0%

50%

100%150%

Switzerland

China

Norway

Japan Canada

UK

Eurozone

US

Percent of GDP

Net international invest

position as % GDP, 20

Sources: Organization for Economic Cooperation and Development, People’s Bank of China/State AChina National Bureau of Statistics
11

U.S. Relative Risk and Return

Lower US Returns Justified by Lowe

US investment abroad generates 

higher average rates of return...

...but weighted a

abroad muc

2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Implied rate of return on US 

investment abroad

Implied rate of return on foreign 

investment in US

Canada Europe Asia and Pacific Middle East Africa Latin America/Other Am

Total (Weighted Averag1995-'05 avg corporate 

Location of US Direct

Investment

Sources: Commerce Department, Congressional Budget Office, Bank of America calculations
12

Specific Trends of Concern

Private Long-Term Inflows a Declining Share o

-20%

0%

20%40%60%80%

100%120%140%

1994

1995

1996

1997

1998

1999

2000

2001

2002

Percent of total inflows

Private long-term inflows (net direct investment and secu

Official inflows

2005 net inflows 

repatriation of fo

by 

Downtrend 

in private 

long-term

inflows

Source: Commerce Department 
13

Specific Trends of Concern

Global Investment Gains to Pull Savings Flows 

2122232425262728

1980 1985 1990 1995 2000 

D

s

Domestic

investment 1984-2006 averages

World Savings and Investment (Excluding 

% of GDP

Source: International Monetary Fund, Bank of America calculations
14

Specific Trends of Concern

US Investors Increasingly Moving into Forei

-$5

$0$5

$10$15$20$25

1991 1993 1995 1997 1999 2001 2

12-month averages, billions

US net purchases of foreign longterm securities (equity and debt)

Source: US Treasury 
15

Specific Trends of Concern

US Direct Investment Outflows Trending Highe

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

1985 1987 1989 1991 1993 1995 1997 1999 

Percent of US GDP

Foreign 

direct 

investment 

in the US 

2005 one-time 

repatriation of forei

retained earnings b

US firms

Source: US Commerce Department 
16

Specific Trends of Concern

Geographic Concentration of Suppliers to C

-$1,000

-$800-$600-$400-$200

$0

$200$400

US

CEE

UK

ANZ

Eurozone 

Asian NICs

Russia

billions

Current Account Surplus (+) or Deficit (-), by Count

Abbreviations: CEE=Central/Eastern Europe, ANZ=Australia/New Zealand, NICs=Newly Industrialized Countries (HSource: International Monetary Fund
17

Conclusions

• Foreign capital inflows provide rising share of US deb

allow stable US investment, despite low savings, at low

• US net foreign investment position and associated flow

relative to GDP, but will grow significantly in coming 

• Share of private inflows has fallen recently, while risin

and investment may pull savings flows away from the to the US dollar and US asset markets

• Source of foreign inflows increasingly concentrated in 

Exporters, raising risk of disruption due to protectionis