Presenta

Treasury Borrowing Advisory 

U.S. Department o

Office of Deb

Nov
Office of Debt Management

Fiscal Outlook
Office of Debt Management

Volatility across credit markets remains though there have bpressures easing

J P Y /US D: S p o t Ex c h a n g e Ra te NY C lo s e 

9 09 5

100105110115120125

Oct-06

Dec-06

Feb-07

Mar-07

May-07

Jun-07

Aug-07

Sep-07

Nov-07

Jan-08

Feb-08

Apr-08

May-08

Jul-08

Aug-08

Oct-08

C BO E M ar k e t V o latility In d e 

L a s t: 7 9 .1 3 

5

1 01 52 02 53 03 54 04 55 05 56 06 57 07 58 0

Oct-06

Dec-06

Jan-07

Mar-07

May-07

Jun-07

Aug-07

Sep-07

Nov-07

Dec-07

Feb08

30-Ye ar T re as u r y No te at C o n s t

3.754.004.254.504.755.005.255.50

Oct-06

Dec-06

Feb-07

Mar-07

May-07

Jun-07

Aug-07

Sep-07

Nov-07

Jan-08

3-Month LIBOR

 (London Bid) (% p.a.) 

1.502.002.503.003.504.004.505.005.506.00

Oct-06

Dec-06

Jan-07

Feb-07 Mar-07 May-07

Jun-07

Jul-07

Aug-07

Oct-07

Nov-07

Dec-07

Jan-08 Mar-08

Apr-08 May-08

Jun-08

Aug-08

Sep-08

Oct-08

3-month LIBOR: 3.52
Office of Debt Management

The economic outlook continues to present challenges

C o n fe r e n c e Bo a r d : C o n s u m e r C o n fid e n c e 

Pr e s e n t Situ atio n an d Exp e ctatio n s 

2 55 07 5

100125150175200

Aug-98

Jun-99

Apr-00

Feb-01

Dec-01

Oct-02

Aug-03

Jun-04

Apr-05

Feb-06

Dec-06

Oct-07

Aug-08

P r e s e n t S itu a tio n : 5 8 .8 (-6 .2 0 )Ex p e c ta tio n s : 6 0 .5 (+6 .4 0 )

No n farm Payro ll C h an g e (SA , T h o u s 

m o n th ch an g e an d C ivilian Un e m p 

-350-250-150

-50

5 0

150250350450

Jan-02

Jun-02

Nov-02

Apr-03

Sep-03

Feb-04

Jul-04

Dec-04

May-05

Oct-05

Mar-06

Aug06

No n fa r m P a y r o ll C h a n g Un e m p lo y m e n t Ra te : 6 

NA R T o tal Exis tin g Ho m e Sale s , U

(SA A R, T h o u s ) an d Ye ar o ve r Ye 

-25%-15%

-5%

5 %

15%25%

Jan-02

Nov-02

Sep-03

Jul-04

May-05

Mar-06

Ex is tin g Ho m e S a le s : 5 1 8 0Y e a r o v e r Y e a r C h a n g e : 1 .4 %

LEI 1-m onth % change

-1.5

-1

-0.5

0

0.5

1

1.5

2

1998 - Jan

1998 - Jul

1999 - Jan

1999 - Jul

2000 - Jan

2000 - Jul

2001 - Jan

2001 - Jul

2002 - Jan

2002 - Jul

2003 - Jan

2003 - Jul

2004 - Jan

2004 - Jul

2005 - Jan

2005 - Jul

2006 - Jan

2006 - Jul

2007 - Jan

2007 - Jul

2008 - Jan

2008 - Jul
Office of Debt Management

From a fiscal perspective, borrowing requirements have steaincreased

Fiscal Year to Date Deficits

(monthly data) 

-49

-162

-258

-148

-121

-157 -163

-56

-154

-106

-88

-311

-152

-319

-269

-371

-483

-81

-274

-80

-42

-122

-263

-600-500-400-300-200-100

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 2008 Y-O-Y % Change
Office of Debt Management

In FY08, growth in receipts was negative for the first time singrowth in outlays accelerated to its highest pace since FY06

Individual and Corporate Tax Receipts 

Fiscal Year to Date

0

200400600800

10001200140016001800

Oct Nov D ec Jan Feb Mar Apr May Jun Jul A

$ billions

Total Outlays

Fiscal Year to Date

0

500

10001500200025003000

Oct Nov Dec Jan Feb Mar Apr May Jun Jul A

$ billions
Office of Debt Management

Withheld and corporate tax receipts continue to decelerate

Rolling 12-Month Growth Rates

-30%-20%-10%

0%

10%20%30%40%

Dec81 Dec- 82 Dec- 83 Dec- 84 Dec- 85 Dec- 86 Dec- 87 Dec- 88 Dec- 89 Dec- 90 Dec- 91 Dec- 92 Dec- 93 Dec- 94 Dec- 95 Dec- 96 Dec- 97 Dec- 98 Dec- 99 Dec- 00 Dec- 01 Dec- 02 D

0

Period ending

Corp Taxes WH Tax
Office of Debt Management

Mitigating volatility in cash balances remains challenging

Daily Treasury Operating Cash Balances

0

100200300400500600700800

Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-

$ billions Data 

Cash Balance with SFPs

Treasury Daily Operating Cash Balance

0

255075

100125150175

Oct Nov Dec Jan Feb Mar Apr May Jun Jul 

$ billions

FY 2007FY 2008FY 2009

Note: Data throug
Office of Debt Management

Primary dealer estimates of the FY 2009 deficit rose to $988 marketable borrowing estimates range between $1.1 trillion trillion

FY 09 Deficit Estimates 

Primary 

Dealers* CBO 

Current: 988 438 Range based on average absolute forecast error** 863 - 1,113 338 - 538 FY 2009 Marketable Borrowing*** 1,400 - FY 2009 Marketable Borrowing Range*** 1,100 - 2,100 - Estimates as of: October 08 September 

* Primary Dealers reflect average estimate.** Ranges based on errors from 2004-2008.*** Based on Primary Dealer feedback on October 30, 2008.
Office of Debt Management

The decline in SOMA bill holdings, SFP related financing, anneeds, have led to higher bill issuance, including cash mana

Bills Outstanding

Total

SOMA

Private

$0

$400$800

$1,200$1,600

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

CMBs and SFP Outst

(as of 10/31/08)

7/1

8/1

9/1

10/1

11/1

12/1

1/1

2/1

3/1

4/1

5/1

6/1

7/1

8/1

Bills: Issued and Net Cash Raised

-

1,0002,0003,0004,000

2005 2006 2007 2008

FY

Amount ($, bn)

Rollover Net cash

Total Bills Maturi

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

Mar-08 Jun-08 Sep-08 
Office of Debt Management

The average maturity of marketable debt outstanding fell bet31 and September 30 as short-term issuance increased

 Average Maturity of Marketable Debt Outstandin

2030405060708090

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 

months

 Quarterly d ata through September 30, 2008. 

5a
Office of Debt Management

Nominal coupon security issuance has also been increased to borrowing needs

Coupon Issuance in 2007-2008

$10.00$15.00$20.00$25.00$30.00$35.00$40.00

4/2/2007

5/2/2007

6/2/2007

7/2/2007

8/2/2007

9/2/2007

10/2/2007

11/2/2007

12/2/2007

1/2/2008

2/2/2008

3/2/2008

4/2/2008

5/2/2008

6/2/2008

Size of Last Offering (billions)

10-Year (Q

30-Year (Sem

Security Most Recent as of October 2007 (bil) Most Recent as of September 2008 (bil) Change in One Year (bil)

2-Year $18.00 $34.00 $16.00

5-Year $13.00 $24.00 $11.00

10-Year $21.00 $29.00 $8.00

30-Year $14.00 $16.00 $2.00

Issuance Sizes and Speed of Change in a Changing Deficit Environment
Office of Debt Management

TIPS’ share of the outstanding portfolio has stabilized at 10%

Year-over-Year Growth R

-5%

0%5%

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

Oct-05 May-06 Nov-06 Jun-07 

Rate

Noms TIPs Poly. (TIP

TIPS Issuance and Outstanding

Fiscal Year

$0

$10$20$30$40$50$60$70$80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$ Billions

$0$100$200$300$400$500$600

10-Y 5-Y 20-Y 30-Y Inflation-Adjusted Outstanding (rhs) Par Outstanding (rhs)

$ Billions

Distribution of Marketable Debt Outstanding by Security

Fiscal Year 

0%5%

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

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

0%5%10%15%20%25%30%35%

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

Projected

Net financing projections for FY 2009-2013 are based on OM B 2009 MSR Budget estimates. Future residual financing nee ds are spread proportionally across 

auctione d securities and are d erived from hypothetical auction sizes. Initial sizes are based on anno unced coupon amo unts a s of September 3 0, 2008 and assume the outsta nd ing level of bills on Septembe r 30, 2008 . All pro jections exclude CM B issuance and ma turing amo unts.
Office of Debt Management

Several estimates indicate that shorter dated TIPS are less ban issuer and investor perspective

Security

 Depository 

Institutions Individuals 

 Dealers & 

Brokers 

Pension & 

Retirement 

funds & Ins. 

Investment 

Funds 

 Foreign and 

International Other 

Average 1% 2% 56% 1% 32% 8% 0% 

5 0% 1% 62% 2% 26% 10% 0% 

10 1% 2% 58% 1% 29% 8% 0% 20 0% 1% 45% 1% 46% 6% 0% 

Investor Class at Auction Breakdown by Security since 2001

Scenario Analysis of the Cost of the October Reopening 

5-Year TIPS 

-200

0

200400600800

1,0001,200

-3.50% -2.50% -1.50% -0.50% 0.50% 

Hypothetical Inflation over Remaining L

Cost (+) / Saving (-) versus Equivalent 5-

Year Nominal ($,mm) 

Breakeven Line

Current Esthe Survey 

Possible Outcomes Highly Biased to Cost due to 

Deflation Floor on the Principal of the Security

Study Cost Estimate (bn, $) Date of Estimate Study Type

Sack/Elsasser 2.8 Through June 2003 Ex PostSack/Elsasser 12.3 Through June 2003 Ex Post + Extrapolation

Roush 5 - 8 Through February 2007 Ex PostRoush 8 - 17 Through February 2007 Ex Post + Extrapolation

TBAC 30 Through July 15, 2008 Ex Post

TIPS Program Cost Estimates
Office of Debt Management

Adjusting the auction calendar should be considered to addborrowing needs while minimizing costs

Security Recent Size, $ Billions4-week, 13-week, and 26-week bills 34, 27, 2752-week bills 21 per month2-year note 34 per month5-year note 24 per month10-year note 29 (17 initial + 12 reopenin30-year bond 16 (10 initial + 6 reopening5-year TIPS 14 (8 initial + 6 reopening)10-year TIPS 14 (8 initial + 6 reopening) 20-year TIPS 14 (8 initial + 6 reopening) Cash Management Bills 37 (average size in FY 200(including SFP)
Office of Debt Management

Coupons can be adjusted to raise additional cash

Coupons: Maturing and Net Ca

-

100200300400500600700800900

2005 2006 

FY

Amount ($, bn)

Amounts Rolled Over and Net Issue ($, bn)

$0

$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500

07 Bills 07 NomCpns 07 TIPs 08 Bills 08 NomCpns 08 TIPs

Securities and Year

Maturing Net Cash
Office of Debt Management

In FY 2009, maturing securities add to financing needs

Coupons Maturing*

November 15, 2008-May 15, 2038

0

1020304050607080

15-NOV-2008

30-NOV-2008

15-DEC-2008

31-DEC-2008

15-JAN-2009

31-JAN-2009

15-FEB-2009

28-FEB-2009

15-MAR-2009

31-MAR-2009

15-APR-2009

30-APR-2009

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

15-NOV-2010

15-DEC-2010

15-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

30-NOV-2011

31-DEC-2011

15-JAN-2012

31-JAN-2012

15-FEB-2012

29-FEB-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

15-NOV-2013

15-JAN-2014

15-FEB-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

15-MAY-2016

15-JUL-2016

15-AUG-2016

15-NOV-2016

15-JAN-2017

15-FEB-2017

15-MAY-2017

15-JUL-2017

15-AUG-2017

15-NOV-2017

15-JAN-2018

15-FEB-2018

15-MAY-2018

15-JUL-2018

15-AUG-2018

15-NOV-2018

15-FEB-2019

15-AUG-2019

15-FEB-2020

15-MAY-2020

15-AUG-2020

15-FEB-2021

15MAY2021

$ Billions

10 YR IIS NOTE 10 YR NOTE 2 YR 20 YR IIS BOND 3 YR NOTE 30 Y30 YR IIS BOND 5 YR IIS NOTE 5 YR 

*Based on coupon securities outstanding as of October 15, 2008.
Office of Debt Management

Given Treasury’s financing needs in the coming years as wcurrent and medium-term trends in the fiscal and economic what are the Committee’s thoughts on Treasury’s debt issuWhat changes to the auction calendar do you recommend make at this time?
Office of Debt Management

Treasury Cash and Debt Management T
Office of Debt Management

Existing Cash and Debt Management Tools

Cash Management Tools• Treasury Tax and Loan (TT&L)• Treasury’s Term Investment Option (TIO)• Repurchase Agreement ProgramDebt Management Tools• Auction schedule 

• Amount• Frequency• Adding/Discontinuing Securities

• Treasury Debt Repurchases
Office of Debt Management

Private sector solutions need to be implemented to prevent reoccurrence

The private sector has repthey would implement theithan involving governmentRecommendations:

•Amend master repo agree•Establish a standard cash •Margining of aged settlem•Negative rate trading•Bilateral cash settlement •Multi-lateral netting facility

Treasury has repeatedly requested as part of its quarterly refundings that the private sector address the fails-todeliver :•Feb 2008•May 2008•Aug 2008•Nov 2006•Aug 2006

•May 2006•Feb 2006•Nov 2005•Aug 2005•Nov 2003

P rim a ry D e a le r T re a s u ry S e c u rity S e ttle m e n t F a i

In te re s t R a te E n v iro n m e n t

0

5 0

100150200250300350400450

1/4/1995

6/4/1995

11/4/1995

4/4/1996

9/4/1996

2/4/1997

7/4/1997

12/4/1997

5/4/1998

10/4/1998

3/4/1999

8/4/1999

1/4/2000

6/4/2000

11/4/2000

4/4/2001

9/4/2001

2/4/2002

7/4/2002

12/4/2002

5/4/2003

10/4/2003

3/4/2004

8/4/2004

1/4/2005

6/4/2005

11/4/2005

4/4/2006

9/4/2006

2/4/2007

$ B illio n s

W e e k ly E ffe c tiv e F e d F u n d s R a te

A v e ra g e D a i ly F a i ls to R e c e iv e

S o u rc e : F R B N Y F R 2 0 0 4 S e ttle m e n t F a ils D a ta & F R B H .1 5
Office of Debt Management

Unscheduled Reopenings

On October 8, Treasury announced that it was reopening $10 billion in each of the foissue 10-year note securities: 

• 3.5% of February 15, 2018 • 4.25% of August 15, 2015• 4.125% of May 15 2015 • 4.0% of February 15, 2015

The actions were undertaken to:

• Address upcoming borrowing needs• Provide additional liquidity given the extraordinary dislocations in the Treasury m

Since then:

• Fails have declined by more than half of their mid-October peak• Treasury 2-year and 5-year auctions performed well

Market participants should not anticipate regular unscheduled reopenings because t

• Are contrary to Treasury’s policy of transparency, regularity, and predictability• Permanently increase outstanding supply for what may be a temporary shortag• Increase supply uncertainty and raise borrowing costs 

• Act as a disincentive to private sector solutions
Office of Debt Management

Given the benefits of a liquid Treasury market and broad iparticipation, what steps should be pursued to ensure conefficient market functioning? Are there any other approaches to auctions, cash and debmanagement tools, and/or instruments that Treasury shouconsider? 
Credit Market Conditions

Treasury Borrowing Advisory Committee

Presentation to the U.S. Treasury

November 4, 2008
Treasury Borrowing Advisory Committee

Credit Market Conditions

November 4, 2008
Executive Summary

•Healing phase started globally

Swap spreads

CP tenure

Monetary base

•Risk adversion in all markets

Credit spreads

Defaults

VIX

•Headwinds

Treasury fails

Credit deterioration in consumer

Lending attitudes

Investors asset allocations

1
Credit Trends

Commercial Paper Outstanding

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

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

Amount ($ millions)

Financial CP Non-Finl CP A BCP

3-month LIB/OIS

0

50

100

150

200

250

300

350

400

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

bps

3-mo Agency Discount Note/UST Bill Spread

0

50

100

150

200

250

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

Spread (bps)

% Commercial Paper Maturing In <4 Days

(5-day Moving Avg)

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08

Finl (10/28/08 = 46%)

Non-Finl (10/28/08 = 41%)

Source: BloombergSource: Bloomberg

Source: Bloomberg Source: Federal Reserve Bank

2
Swap Spreads

Source Bloomberg

U.S. 2 yr Euro 2 yr

Sterling 2 yr Yen 2 yr

Swap Spreads Narrowing In US And Europe. 3
The Monetary Base

Source: Bloomberg

The Fed Has Expanded The Monetary Base By Nearly 39%.

4
U.S. Spreads

Agencies Corporates

High YieldLoans

Selected Large Institutional Flow Loans

L+100

L+200

L+300

L+400

L+500

L+600

L+700

L+800

L+900

L+1000

Pre-9/11

12/6/2001

3/5/2002

5/21/20028/13/2002

10/29/2002

1/21/2003

4/8/2003

6/24/2003

9/11/2003

12/2/2003

2/24/20045/11/20047/27/2004

10/14/2004

1/11/20053/29/20056/14/20058/30/2005

11/15/2005

2/7/2006

4/25/20067/13/20069/28/2006

12/19/2006

3/8/2007

5/24/2007

8/9/2007

10/30/2007

1/29/20084/15/2008

7/1/2008

9/16/2008

Source: Standard and Poor’s

U.S. Corporate Investment Grade - OAS

NUGGETTAG:userName=null &plotName=null

100

200

300

400

500

2000 2002 2004 2006 2008

Source: LehmanLive.com

Key Axis Name Last Minimum Maximum Mean SD SD Change

Left U.S. Corporate Investment Grade - OAS 568.552 75.757 03/11/2005 570.728 10/27/2008 146.32270.601 2.880

U.S. Agency - OAS

NUGGETTAG:userName=null &plotName=null

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008

Source: LehmanLive.com

Key Axis Name Last Minimum Maximum Mean SD SD Change

Left U.S. Agency - OAS 157.914 18.095 01/03/2007 163.962 10/28/2008 40.106 17.288 2.015

U.S. Corporate High Yield - OAS

200 NUGGETTAG:userName=null &plotName=null

400

600

800

1,000

1,200

1,400

2000 2002 2004 2006 2008

Source: LehmanLive.com

Key Axis Name Last Minimum Maximum Mean SD SD Change

Left U.S. Corporate High Yield - OAS1479.068 232.645 05/23/2007 1516.719 10/27/2008538.910225.145 10.813

Credit Spreads Generally Wider

Average Secondary Spread to Maturity

5
The VIX

Source: Bloomberg

Stock Market Volatility Hitting Thirteen Year Highs

6
Bloom berg Financial Conditions Index

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0.000

2.000

4.000

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Sta

n

d

ard

D

e

v fro

m

J

a

n 19

9

2-J

u

n

2

0

0

8

A

v

g

Money Market Index Weight Bond Market Index Weight Equity Market Index Weight

TED Spread 11.1% Investment-Grade Corp/Tsy Spread 6.7% S&P 500 Share Prices 16.7%

Commercial Paper/T-Bill Spread 11.1% Muni/Treasury Spread 6.7% VIX Index 16.7%

LIBOR-OIS Spread 11.1% Swaps/Treasury Spread 6.7% 33.3%

33.3% High Yield/Treasury Spread 6.7%

Agency/Treasury Spread 6.7%

33.3%

Total 100.0%

Bloomberg's U.S. Financial Conditions Index

Components and Weights

Source Bloomberg 7
Treasury System Fails

Source: Bianco Research, L.L.C

8
But Banks are Hoarding Cash

Sources: The Federal Reserve Board , The Bloomberg, and Merrill Lynch

Bank Cash Holdings at are above the levels of Sept 2001

9