Treasury Presentation to TBAC
Office of Debt Management

Fiscal Year 2014 Q3 Report
Table of Contents

3

I. Fiscal

A. Quarterly Tax Receipts p. 4

B. Monthly Receipt Levels p. 5

C. Eleven Largest Outlays p. 6

D. Treasury Net Nonmarketable Borrowing p. 7

E. Cumulative Budget Deficits p. 8

F. Deficit and Borrowing Estimates p. 9

G. Budget Surplus/Deficit p. 10

II. Financing

A. Sources of Financing p. 13

B. OMB’s Projections of Net Borrowing from the Public p. 15

C. Interest Rate Assumptions p. 16

D. Net Marketable Borrowing on “Auto Pilot” Versus Deficit Forecasts p. 17

III. Portfolio Metrics

A. Weighted Average Maturity of Marketable Debt Outstanding with Projections p. 22

B. Projected Gross Borrowing p. 23

C. Recent and Projected Maturity Profile p. 24

IV. Demand

A. Summary Statistics p. 29

B. Bid-to-Cover Ratios p. 30

C. Investor Class Awards at Auction p. 35

D. Primary Dealer Awards at Auction p. 39

E. Direct Bidder Awards at Auction p. 40

F. Foreign Awards at Auction p. 41
Section I:

Fiscal

4
5 Source: United States Department of the Treasury 

-50%

-25%

0%

25%

50%

75%

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Year over Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl FICA)
6

Individual Income Taxes include withheld and non-withheld. Social Insurance Taxes include FICA, SECA, RRTA, UTF deposits, FUTA and 

RUIA. Other includes excise taxes, estate and gift taxes, customs duties and miscellaneous receipts. 

Source: United States Department of the Treasury 

0

20

40

60

80

100

120

140

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

Individual Income Taxes Corporation Income Taxes Social Insurance Taxes Other
7 Source: United States Department of the Treasury 

0

100

200

300

400

500

600

700

800

HHS

SSA

Defense

Treasury

Agriculture

Labor

VA

Transportation

OPM

Education

Other Defense Civil

$ bn

Eleven Largest Outlays

Oct - Jun FY 2013 Oct - Jun FY 2014
8 Source: United States Department of the Treasury 

(35)

(25)

(15)

(5)

5

15

25

Q3-04Q4-04Q1-05Q2-05Q3-05Q4-05Q1-06Q2-06Q3-06Q4-06Q1-07Q2-07Q3-07Q4-07Q1-08Q2-08Q3-08Q4-08Q1-09Q2-09Q3-09Q4-09Q1-10Q2-10Q3-10Q4-10Q1-11Q2-11Q3-11Q4-11Q1-12Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

Foreign Series State and Local Govt. Series (SLGS) Savings Bonds
9 Source: United States Department of the Treasury 

0

200

400

600

800

1,000

1,200

1,400

October

November

December

January

February

March

April

May

June

July

August

September

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2012 FY2013 FY2014
Primary 

Dealers1 CBO2

CBO's Analysis

of the

President's Budget3 OMB MSR4

FY 2014 Deficit Estimate 506 492 506 583

FY 2015 Deficit Estimate 492 496 509 525

FY 2016 Deficit Estimate 538 536 548 525

FY 2014 Deficit Range 450 - 560

FY 2015 Deficit Range 425 - 600

FY 2016 Deficit Range 375 - 750

FY 2014 Net Marketable Borrowing Estimate 634 757 772 891

FY 2015 Net Marketable Borrowing Estimate 582 545 579 655

FY 2016 Net Marketable Borrowing Estimate 610 599 611 658

FY 2014 Net Marketable Borrowing Range 500 - 710

FY 2015 Net Marketable Borrowing Range 400 - 730

FY 2016 Net Marketable Borrowing Range 450 - 810

Estimates as of: Jul-14 Apr-14 Apr-14 Jul-14

1

Based on primary dealer feedback on Jul 28, 2014. Estimates above are averages. 

2 Table 1 of the "Updated Budget Projections: Fiscal Years 2014 to 2024"

3

Table 1 of the "An Analysis of the President's 2015 Budget"

4

Table S-11 of the "Fiscal Year 2015 MSR"

10

FY 2014-2016 Deficits and Net Marketable Borrowing Estimates In $ billions
-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

200120022003200420052006200720082009201020112012201320142015201620172018201920202021202220232024

$ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit in $bn (L) Surplus/Deficit as a % of GDP (R)

Projections are from Table S-1 of OMB’s “Fiscal Year 2015 MSR” 

11

OMB’s Projection
Section II:

Financing

12
13

Assumptions for Financing Section (pages 13 to 19)

• Portfolio & SOMA holdings as of 06/30/2014

• Estimated projections of the Large Scale Asset Purchase program, announced on 12/12/2012 by the 

Federal Reserve, assumed to last until October 2014 with SOMA redemptions until June 2021. These 

assumptions are based on the Federal Reserve’s June 2014 primary dealer survey and Chairman 

Bernanke’s June 2013 press conference. 

• Assumes announced issuance sizes and patterns constant for Nominal Coupons ,TIPS, and FRNs as of 

08/06/2014, while using an average of ~1.45 trillion of Bills Outstanding consistent with Treasury’s 

guidance of the FRN program replacing some Bills issuance. 

• The principal on the TIPS securities was accreted to each projection date based on market ZCIS levels. 

• No attempt was made to match future financing needs. 
14

Sources of Financing in Fiscal Year 2014 Q3

*Assumes an end-of-June 2014 cash balance of $139 billion versus a beginning-of-April 2014 cash balance of $142 billion. By keeping the cash 

balance constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance (264) Issuance Gross Maturing Net Gross Maturing Net

Net Coupon Issuance 200 Bills 4-Week 410 425 (15) 1,183 1,218 (35)

Subtotal: Net Marketable Borrowing (64) Bills 13-Week 325 367 (42) 1,114 1,179 (65)

Bills 26-Week 299 367 (68) 1,000 1,032 (32)

Ending Cash Balance 139 Bills 52-Week 100 98 2 238 248 (10)

Beginning Cash Balance 142 Bills CMBs 25 166 (141) 221 221 0

Subtotal: Change in Cash Balance (3) Bill Subtotal 1,159 1,423 (264) 3,756 3,898 (142)

Net Implied Funding for FY 2014 Q3* (61)

Issue Gross Maturing Net Gross Maturing Net

2-Year 93 106 (13) 285 322 (37)

2-Year FRN 41 0 41 82 0 82

3-Year 87 98 (11) 267 293 (26)

5-Year 105 110 (5) 315 294 21

7-Year 87 0 87 261 0 261

10-Year 66 27 39 198 86 112

30-Year 42 0 42 126 0 126

5-Year TIPS 18 17 1 34 17 17

10-Year TIPS 13 0 13 54 27 27

30-Year TIPS 7 0 7 23 0 23

Coupon Subtotal 559 359 200 1,645 1,038 607

Total 1,718 1,782 (64) 5,401 4,936 465

April - June 2014 Fiscal Year to Date

Coupon Issuance

April - June 2014 April - June 2014 Fiscal Year to Date

Bill Issuance
15

Sources of Financing in Fiscal Year 2014 Q4

*Keeping announced issuance sizes and patterns constant for Nominal Coupons, TIPS, and FRNs as of 08/06/2014, while using an average of 

~1.45 trillion of Bills Outstanding consistent with Treasury’s guidance of the FRN program replacing some Bills issuance.

**Assumes an end-of-September 2014 cash balance of $150 billion versus a beginning-of-July 2014 cash balance of $139 billion.

Financing Estimates released by the Treasury can be found via the following url: http://www.treasury.gov/resource-center/data-chartcenter/quarterly-refunding/Pages/Latest.aspx

Assuming Constant Coupon and Average Bill Issuance Sizes as of 06/30/2014*: Issuance Gross Maturing Net Gross Maturing Net

Net Bill Issuance 38 4-Week 416 408 8 1,599 1,626 (27)

Net Coupon Issuance 178 13-Week 364 325 39 1,478 1,504 (26)

Subtotal: Net Marketable Borrowing 216 26-Week 325 334 (9) 1,325 1,366 (41)

52-Week 72 72 0 310 320 (10)

Treasury Announced Estimate: Net Marketable Borrowing** 192 CMBs 0 0 0 221 221 0

Implied: Decrease In FY 2014 Q4 Net Issuances (24) Bill Subtotal 1,177 1,139 38 4,933 5,037 (104)

Issue Gross Maturing Net Gross Maturing Net

2-Year 85 105 (20) 370 427 (57)

2-Year FRN 41 0 41 123 0 123

3-Year 79 97 (18) 346 390 (44)

5-Year 105 121 (16) 420 415 5

7-Year 87 0 87 348 0 348

10-Year 66 25 41 264 111 153

30-Year 42 0 42 168 0 168

5-Year TIPS 16 0 16 50 17 33

10-Year TIPS 28 24 4 82 50 32

30-Year TIPS 0 0 0 23 0 23

Coupon Subtotal 549 371 178 2,194 1,410 784

Total 1,726 1,510 216 7,127 6,447 680

Coupon Issuance

July - September 2014 July - September 2014 Fiscal Year to Date

Bill Issuance

July - September 2014 Fiscal Year to Date
891 655 658 596 568 669 695 698 739 706 672

55%

60%

65%

70%

75%

80%

(400)

(200)

0

200

400

600

800

1,000

20142015201620172018201920202021202220232024

% of GDP

$ bn

Fiscal Year

OMB's Projections of Borrowing from the Public 

Primary Deficit Net Interest Other Debt Held by

Public as a Percent of GDP - RHS

Debt Held by

Public Net of Financial Assets as a Percent of GDP - RHS

16

OMB’s projections of net borrowing from the public are from Table S-11 of the “Fiscal Year 2015 Mid-Session Review.” Data labels at the top 

represent the change in debt held by the public in $ billions. “Other” represents borrowing from the public to provide direct and guaranteed 

loans.

$ bn %

Primary Deficit 486 6%

Net Interest 5,620 74%

Other 1,441 19%

Total 7,547

FY 2014 - 2024 Cumulative Total
17

OMB’s economic assumption of the 10-year Treasury note rates are from Table 2 of the “Fiscal Year 2015 Mid-Session Review.” The implied 10-

year Treasury note forward rates are the averages for each fiscal year.

10-Year Treasury Rate,

2.53%, as of 06/30/2014

1.5

2

2.5

3

3.5

4

4.5

5

5.5

20142015201620172018201920202021202220232024

10-Year Treasury Note Rate, %

Interest Rate Assumptions:

10-Year Treasury Notes

OMB FY 2015 MSR Jul 2014 Implied Forward

Rates as of 6/30/2014
18 Treasury’s primary dealer survey estimates can be found on page 9. OMB’s estimates of borrowing from the public are from Table S-11 of the 

“Fiscal Year 2015 Mid-Session Review.” CBO’s estimates of the borrowing from the public are from Table 2 of the “An Analysis of the 

President's 2015 Budget.” See table at the end of this section for details.

0

100

200

300

400

500

600

700

800

900

1,000

20142015201620172018201920202021202220232024

$ bn

Fiscal Year

Projected Net Borrowing Assuming Future Issuance Remains 

Constant

Projected Net Borrowing OMB’s Fiscal Year 2015 MSR

CBO's An Analysis of the President's Budget PD Survey Marketable Borrowing Estimates

OFP FY 2014 Net Marketable Borrowing Estimate
19

Impact of SOMA Actions on Projected Net Borrowing Assuming Future 

Issuance Remains Constant

Treasury’s primary dealer survey estimates can be found on page 9. OMB’s estimates of borrowing from the public are from Table S-11 of the 

“Fiscal Year 2015 Mid-Session Review.” CBO’s estimates of the borrowing from the public are from Table 2 of the “An Analysis of the 

President's 2015 Budget.” See table at the end of this section for details.

0

200

400

600

800

1000

1200

20142015201620172018201920202021202220232024

Fiscal Year

With Fed Reinvestments ($bn)

Projected Net Borrowing

CBO's An Analysis of the President's 2015 Budget

OFP FY 2014 Net Marketable Borrowing Estimate

0

200

400

600

800

1000

1200

20142015201620172018201920202021202220232024

Fiscal Year

Without Fed Reinvestments ($bn)

OMB's Fiscal Year 2015 MSR

PD Survey Marketable Borrowing Estimates
20

Historical Net Marketable Borrowing and Projected Net Borrowing 

Assuming Future Issuance Remains Constant, $ billions

*OFP’s FY 2014 Net Marketable Borrowing Projection

Treasury’s primary dealer survey estimates can be found on page 9. OMB’s estimates of borrowing from the public are from Table S-11 of the 

“Fiscal Year 2015 Mid-Session Review.” CBO’s estimates of the borrowing from the public are from Table 2 of the “An Analysis of the 

President's 2015 Budget.” See table at the end of this section for details.

End of Fiscal 

Year

Bills 2/3/5 7/10/30 TIPS FRN

Historical Net Marketable 

Borrowing/Projected Net 

Borrowing Capacity

OMB’s Fiscal Year 

2015 MSR

CBO's An Analysis of 

the President's 

Budget

July 2014 

Primary 

Dealer 

Survey

2009 503 732 514 38 0 1,786

2010 (204) 869 783 35 0 1,483

2011 (311) 576 751 88 0 1,104

2012 139 148 738 90 0 1,115

2013 (86) 86 720 111 0 830

2014 (104) (96) 669 88 123 680 657* 772 634

2015 28 (247) 639 86 164 670 655 579 582

2016 0 (123) 442 67 41 427 658 611 610

2017 0 (41) 256 67 0 282 596 604

2018 0 35 238 61 0 334 568 604

2019 0 35 104 62 0 200 669 704

2020 0 0 119 34 0 153 695 762

2021 0 14 155 7 0 176 698 800

2022 0 75 226 (6) 0 296 739 869

2023 0 43 188 (7) (0) 223 706 838

2024 0 (0) 188 (8) 0 179 672 812
Section III:

Portfolio Metrics

21
22

Assumptions for Portfolio Metrics Section (pages 22 to 27) and Appendix

• Portfolio & SOMA holdings as of 06/30/2014 

• Estimated projections of the Large Scale Asset Purchase program, announced on 12/12/2012 by the 

Federal Reserve, assumed to last until October 2014 with SOMA redemptions until June 2021. These 

assumptions are based on the Federal Reserve’s June 2014 primary dealer survey and Chairman 

Bernanke’s June 2013 press conference. 

• To match OMB’s projected borrowing from the public for the next 10 years, nominal coupon securities 

(2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. 

• The principal on the TIPS securities was accreted to each projection date based on market ZCIS levels.

• OMB’s estimates of borrowing from the public are from Table S-11 of the “Fiscal Year 2015 Mid-Session 

Review.” 
40

45

50

55

60

65

70

75

80

85

19801982198419861988199019921994199619982000200220042006200820102012201420162018202020222024

Weighted Average Maturity (Months)

Calendar Year

Weighted Average Maturity of Marketable Debt Outstanding

Historical Adjust Nominal Coupons to Match Financing Needs Historical Average from 1980 to end of FY 2014 Q3

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 23

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.

68.4 months on 

06/30/2014

58.7 months 

(Historical Average 

from 1980 to Present)
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 24

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

20142015201620172018201920202021202220232024

$bn

Projected Gross Borrowing Excluding Bills

Maturing in < 1 Year excluding Bills OMB's Projected Net Borrowing
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 25

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on following page for details. 

0

2

4

6

8

10

12

14

16

18

20

20142015201620172018201920202021202220232024

$ tr

End of Fiscal Year

Projected Maturity Profile, $ trillions

< 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr
26 This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio Composition by original issuance type 

and term can be found in the appendix (Page 43).

Recent and Projected Maturity Profile, $ billions

End of Fiscal 

Year < 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr Total [0, 5)

2007 1,581 663 341 545 267 480 557 4,434 3,130

2008 2,152 711 280 653 310 499 617 5,222 3,796

2009 2,702 774 663 962 529 672 695 6,998 5,101

2010 2,563 1,141 869 1,299 907 856 853 8,488 5,872

2011 2,620 1,272 1,002 1,516 1,136 1,053 1,017 9,616 6,410

2012 2,889 1,395 1,109 1,847 1,214 1,108 1,181 10,742 7,239

2013 2,939 1,523 1,176 2,031 1,425 1,165 1,331 11,590 7,669

2014 2,950 1,643 1,407 2,201 1,408 1,136 1,525 12,269 8,201

2015 3,099 1,878 1,353 2,310 1,507 1,146 1,654 12,948 8,640

2016 3,242 1,864 1,587 2,414 1,511 1,187 1,828 13,633 9,108

2017 3,320 2,053 1,554 2,523 1,541 1,261 2,009 14,260 9,450

2018 3,509 2,105 1,602 2,603 1,577 1,314 2,154 14,863 9,818

2019 3,467 2,198 1,742 2,652 1,751 1,436 2,325 15,572 10,060

2020 3,663 2,327 1,674 2,851 1,810 1,416 2,571 16,311 10,515

2021 3,785 2,265 1,834 3,027 1,843 1,467 2,834 17,056 10,912

2022 3,724 2,427 1,991 3,145 1,930 1,483 3,145 17,844 11,287

2023 3,885 2,605 2,017 3,164 1,979 1,494 3,457 18,602 11,671

2024 4,067 2,686 2,037 3,205 2,068 1,506 3,758 19,327 11,996
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic 27

trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on following page for details

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20142015201620172018201920202021202220232024

End of Fiscal Year

Projected Maturity Profile, percent

< 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr
28

Recent and Projected Maturity Profile, percent

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio Composition by original issuance type 

and term can be found in the appendix (Page 43).

End of Fiscal 

Year < 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr [0, 3) [0, 5)

2007 35.7% 15.0% 7.7% 12.3% 6.0% 10.8% 12.6% 58.3% 70.6%

2008 41.2% 13.6% 5.4% 12.5% 5.9% 9.6% 11.8% 60.2% 72.7%

2009 38.6% 11.1% 9.5% 13.7% 7.6% 9.6% 9.9% 59.1% 72.9%

2010 30.2% 13.4% 10.2% 15.3% 10.7% 10.1% 10.0% 53.9% 69.2%

2011 27.2% 13.2% 10.4% 15.8% 11.8% 10.9% 10.6% 50.9% 66.7%

2012 26.9% 13.0% 10.3% 17.2% 11.3% 10.3% 11.0% 50.2% 67.4%

2013 25.4% 13.1% 10.1% 17.5% 12.3% 10.1% 11.5% 48.6% 66.2%

2014 24.0% 13.4% 11.5% 17.9% 11.5% 9.3% 12.4% 48.9% 66.8%

2015 23.9% 14.5% 10.4% 17.8% 11.6% 8.9% 12.8% 48.9% 66.7%

2016 23.8% 13.7% 11.6% 17.7% 11.1% 8.7% 13.4% 49.1% 66.8%

2017 23.3% 14.4% 10.9% 17.7% 10.8% 8.8% 14.1% 48.6% 66.3%

2018 23.6% 14.2% 10.8% 17.5% 10.6% 8.8% 14.5% 48.5% 66.1%

2019 22.3% 14.1% 11.2% 17.0% 11.2% 9.2% 14.9% 47.6% 64.6%

2020 22.5% 14.3% 10.3% 17.5% 11.1% 8.7% 15.8% 47.0% 64.5%

2021 22.2% 13.3% 10.8% 17.7% 10.8% 8.6% 16.6% 46.2% 64.0%

2022 20.9% 13.6% 11.2% 17.6% 10.8% 8.3% 17.6% 45.6% 63.3%

2023 20.9% 14.0% 10.8% 17.0% 10.6% 8.0% 18.6% 45.7% 62.7%

2024 21.0% 13.9% 10.5% 16.6% 10.7% 7.8% 19.4% 45.5% 62.1%
Section IV:

Demand

29
30

*Weighted averages of Competitive Awards.

**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS’ 10-year equivalent, a 

constant auction BEI is used as the inflation assumption.

Summary Statistics for Fiscal Year 2014 Q3 Auctions

Security 

Type Term Stop Out Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($ bn)

% 

Primary 

Dealer*

% 

Direct*

% 

Indirect*

NonCompetitive 

Awards ($ bn)

SOMA 

Add Ons 

($ bn)

10-Yr 

Equivalent 

($ bn)**

Bill 4-Week 0.026 4.4 405.5 73.8% 6.8% 19.4% 3.1 0.0 3.6

Bill 13-Week 0.030 4.8 316.0 73.1% 5.9% 21.0% 5.5 0.0 9.4

Bill 26-Week 0.053 5.0 286.9 57.0% 6.3% 36.7% 4.6 0.0 17.3

Bill 52-Week 0.109 4.5 99.0 55.4% 5.9% 38.7% 0.6 0.0 11.6

Bill CMBs 0.050 4.7 25.0 93.0% 6.2% 0.8% 0.0 0.0 0.1

Coupon 2-Year 0.449 3.4 92.2 55.8% 22.4% 21.8% 0.5 0.0 21.4

Coupon 3-Year 0.917 3.4 86.6 50.0% 22.7% 27.3% 0.1 0.0 30.0

Coupon 5-Year 1.638 2.8 104.8 37.9% 12.8% 49.3% 0.2 0.0 58.2

Coupon 7-Year 2.160 2.5 86.9 36.4% 19.9% 43.6% 0.1 0.0 65.1

Coupon 10-Year 2.658 2.8 65.9 37.5% 18.9% 43.6% 0.1 0.0 66.8

Coupon 30-Year 3.468 2.4 42.0 39.7% 15.5% 44.8% 0.0 0.0 90.7

TIPS 5-Year (0.213) 2.7 17.9 35.7% 5.9% 58.4% 0.1 0.0 10.5

TIPS 10-Year 0.339 2.9 13.0 27.5% 6.3% 66.3% 0.0 0.0 13.8

TIPS 30-Year 1.116 2.8 7.0 32.1% 8.2% 59.7% 0.0 0.0 19.7

FRN 2-Year 0.067 4.6 40.9 55.1% 6.4% 38.5% 0.1 0.0 0.8

Total Bills 0.042 4.7 1,132.5 68.2% 6.3% 25.5% 13.8 0.0 42.0

Total Coupons 1.674 2.9 478.3 43.4% 18.8% 37.8% 1.0 0.0 332.2

Total TIPS 0.221 2.8 37.9 32.2% 6.5% 61.3% 0.1 0.0 44.0

Total FRN 0.067 4.6 40.9 55.1% 6.4% 38.5% 0.1 0.0 0.8
31

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jun-04Jun-05Jun-06Jun-07Jun-08Jun-09Jun-10Jun-11Jun-12Jun-13Jun-14

Bid-to-Cover Ratio

Bid-to-Cover Ratios for Treasury Bills

4-Week (13-week moving average) 13-Week (13-week moving average)

26-Week (13-week moving average) 52-Week (6-month moving average)
32

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs
33

2

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

3.8

4

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Bid-to-Cover Ratio

Bid-to-Cover Ratios for 2-, 3-, and 5-Year Nominal Securities

(6-Month Moving Average)

2-Year 3-Year 5-Year
34

2

2.2

2.4

2.6

2.8

3

3.2

3.4

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Bid-to-Cover Ratio

Bid-to-Cover Ratios for 7-, 10-, and 30-Year Nominal Securities

(6-Month Moving Average)

7-Year 10-Year 30-Year
35

1

1.5

2

2.5

3

3.5

Sep-00Sep-01Sep-02Sep-03Sep-04Sep-05Sep-06Sep-07Sep-08Sep-09Sep-10Sep-11Sep-12Sep-13

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) 20-Year 30-Year
36 Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

Feb-14

Apr-14

Jun-14

13-week moving average

Percent Awarded in Bills Auctions by Investor Class

(3-Month Moving Average) 

Other Dealers and Brokers Investment Funds Foreign and International Other
37 Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

6-month moving average

Percent Awarded in 2-, 3-, 5-Year Nominal Security Auctions by 

Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
38 Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

6-month moving average

Percent Awarded in 7-, 10-, 30-Year Nominal Security Auctions 

by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
39 Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

6-month moving average

Percent Awarded in TIPS Auctions by Investor Class 

(6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
40 Excludes SOMA add-ons. 

35%

40%

45%

50%

55%

60%

65%

70%

75%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction, percent

4/13/26-Week (13-week moving average) 52-Week (6-month moving average) 2/3/5 (6-month moving average)

7/10/30 (6-month moving average) TIPS (6-month moving average)
41 Excludes SOMA add-ons. 

0%

5%

10%

15%

20%

25%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

% of Total Competitive Amount Awarded

Direct Bidder Awards at Auction, percent

4/13/26-Week (13-week moving average) 52-Week (6-month moving average) 2/3/5 (6-month moving average)

7/10/30 (6-month moving average) TIPS (6-month moving average)
42 Foreign includes both private sector and official institutions.

0

20

40

60

80

100

120

140

160

180

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

$bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2/3/5 7/10/30 TIPS FRNs
Appendix

43
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic 44

trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on following page for details

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015201620172018201920202021202220232024

% of Portfolio

Projected Portfolio Composition by Issuance Type, percent

Bills 2/3/5 7/10/30 TIPS (principal accreted to projection date) FRN
45

Recent and Projected Portfolio Composition by Issuance Type, percent

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the 

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. 

End of Fiscal Year Bills 2-, 3-, 5-Year 

Nominal Coupons

7-, 10-, 30-Year 

Nominal Coupons

Total Nominal 

Coupons

TIPS (principal 

accreted to 

projection date)

FRN

2007 21.6% 38.9% 29.2% 68.1% 10.3% 0.0%

2008 28.5% 34.5% 26.9% 61.4% 10.0% 0.0%

2009 28.5% 36.2% 27.4% 63.6% 7.9% 0.0%

2010 21.1% 40.1% 31.8% 71.9% 7.0% 0.0%

2011 15.4% 41.4% 35.9% 77.3% 7.3% 0.0%

2012 15.0% 38.4% 39.0% 77.4% 7.5% 0.0%

2013 13.2% 35.8% 43.0% 78.7% 8.1% 0.0%

2014 11.6% 32.9% 45.9% 78.9% 8.5% 1.0%

2015 11.2% 29.2% 48.4% 77.6% 8.9% 2.2%

2016 10.7% 27.8% 50.0% 77.8% 9.2% 2.4%

2017 10.2% 27.5% 50.5% 78.1% 9.5% 2.3%

2018 9.8% 27.4% 50.8% 78.3% 9.7% 2.2%

2019 9.3% 27.9% 50.8% 78.6% 9.9% 2.1%

2020 8.9% 28.2% 50.9% 79.1% 10.0% 2.0%

2021 8.5% 28.3% 51.4% 79.7% 9.8% 1.9%

2022 8.1% 28.2% 52.2% 80.4% 9.7% 1.8%

2023 7.8% 28.2% 52.8% 80.9% 9.5% 1.8%

2024 7.5% 27.9% 53.5% 81.4% 9.4% 1.7%
*Weighted averages of Competitive Awards. 46

**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards.

Issue Settle Date Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards ($ bn)

% Primary 

Dealer* % Direct* % Indirect* Non-Competitive Awards ($ bn)

SOMA Add 

Ons ($ bn)

10-Yr Equivalent 

($ bn)**

4-Week 4/3/2014 0.020 4.67 24.75 69.5% 7.7% 22.9% 0.25 0.00 0.22

4-Week 4/10/2014 0.025 4.98 24.76 73.3% 3.8% 22.9% 0.24 0.00 0.22

4-Week 4/17/2014 0.025 5.00 24.76 67.6% 6.2% 26.2% 0.24 0.00 0.22

4-Week 4/24/2014 0.015 4.83 24.78 74.7% 5.2% 20.1% 0.22 0.00 0.23

4-Week 5/1/2014 0.010 4.55 24.39 83.6% 4.6% 11.8% 0.28 0.00 0.23

4-Week 5/8/2014 0.025 4.10 34.76 84.4% 5.6% 10.0% 0.24 0.00 0.32

4-Week 5/15/2014 0.025 4.70 39.77 71.5% 3.2% 25.3% 0.23 0.00 0.36

4-Week 5/22/2014 0.030 4.04 44.77 77.1% 11.4% 11.6% 0.23 0.00 0.39

4-Week 5/29/2014 0.040 3.77 44.49 69.2% 10.9% 19.9% 0.23 0.00 0.39

4-Week 6/5/2014 0.035 4.38 34.74 75.4% 6.4% 18.3% 0.26 0.00 0.31

4-Week 6/12/2014 0.030 4.68 29.75 64.3% 5.4% 30.4% 0.25 0.00 0.26

4-Week 6/19/2014 0.030 4.31 29.74 71.9% 4.7% 23.3% 0.26 0.00 0.26

4-Week 6/26/2014 0.010 4.38 24.06 77.3% 9.4% 13.3% 0.21 0.00 0.22

13-Week 4/3/2014 0.045 4.83 24.29 83.5% 8.6% 7.9% 0.46 0.00 0.73

13-Week 4/10/2014 0.030 4.88 24.49 76.0% 7.8% 16.2% 0.47 0.00 0.73

13-Week 4/17/2014 0.035 4.59 24.45 75.7% 4.8% 19.5% 0.43 0.00 0.73

13-Week 4/24/2014 0.030 4.64 24.47 74.4% 4.5% 21.1% 0.43 0.00 0.73

13-Week 5/1/2014 0.020 4.89 23.85 77.9% 6.3% 15.8% 0.36 0.00 0.73

13-Week 5/8/2014 0.025 4.86 24.50 71.3% 6.0% 22.7% 0.40 0.00 0.73

13-Week 5/15/2014 0.025 5.05 24.47 57.3% 4.2% 38.5% 0.43 0.00 0.74

13-Week 5/22/2014 0.025 4.82 24.44 73.4% 5.5% 21.1% 0.46 0.00 0.71

13-Week 5/29/2014 0.030 4.93 23.93 67.0% 3.8% 29.2% 0.41 0.00 0.71

13-Week 6/5/2014 0.035 5.05 24.40 58.8% 5.3% 35.9% 0.40 0.00 0.71

13-Week 6/12/2014 0.035 4.96 24.54 69.7% 3.7% 26.6% 0.44 0.00 0.72

13-Week 6/19/2014 0.035 4.40 24.53 85.1% 4.8% 10.2% 0.37 0.00 0.72

13-Week 6/26/2014 0.025 4.17 23.68 80.6% 11.1% 8.4% 0.41 0.00 0.72

26-Week 4/3/2014 0.065 5.18 22.05 50.1% 7.5% 42.4% 0.37 0.00 1.34

26-Week 4/10/2014 0.050 5.35 22.01 49.8% 7.5% 42.7% 0.41 0.00 1.34

26-Week 4/17/2014 0.050 4.96 22.07 57.1% 7.3% 35.6% 0.35 0.00 1.34

26-Week 4/24/2014 0.050 4.64 22.04 55.7% 4.4% 39.8% 0.31 0.00 1.35

26-Week 5/1/2014 0.045 5.28 21.71 55.2% 7.2% 37.6% 0.30 0.00 1.35

26-Week 5/8/2014 0.045 5.06 22.04 55.0% 5.9% 39.1% 0.39 0.00 1.35

26-Week 5/15/2014 0.050 4.95 22.14 69.5% 2.8% 27.7% 0.38 0.00 1.35

26-Week 5/22/2014 0.050 5.08 22.27 58.1% 5.8% 36.0% 0.35 0.00 1.31

26-Week 5/29/2014 0.050 5.19 21.70 54.5% 3.1% 42.4% 0.35 0.00 1.32

26-Week 6/5/2014 0.055 4.90 22.36 59.8% 5.3% 35.0% 0.32 0.00 1.31

26-Week 6/12/2014 0.060 5.28 22.39 64.3% 3.0% 32.8% 0.34 0.00 1.32

26-Week 6/19/2014 0.070 4.76 22.36 59.4% 5.9% 34.7% 0.37 0.00 1.32

26-Week 6/26/2014 0.050 4.60 21.79 53.0% 14.1% 33.0% 0.33 0.00 1.33

52-Week 4/3/2014 0.125 4.99 24.75 44.6% 6.5% 48.9% 0.18 0.00 2.91

52-Week 5/1/2014 0.105 4.50 24.70 62.3% 7.9% 29.8% 0.12 0.00 2.93

52-Week 5/29/2014 0.095 4.57 24.77 58.8% 5.6% 35.6% 0.15 0.00 2.84

52-Week 6/26/2014 0.110 4.05 24.79 56.2% 3.5% 40.3% 0.13 0.00 2.87

CMBs 6/5/2014 0.050 4.66 25.00 93.0% 6.2% 0.8% 0.00 0.00 0.11

Bill Issues
47

*Weighted averages of Competitive Awards.

**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS’ 10-Year Equivalent, a 

constant auction BEI is used as the inflation assumption.

Issue Settle Date Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards ($ bn)

% Primary 

Dealer* % Direct* % Indirect* Non-Competitive Awards ($ bn)

SOMA Add 

Ons ($ bn)

10-Yr Equivalent 

($ bn)**

2-Year 4/30/2014 0.447 3.35 31.76 57.7% 19.0% 23.4% 0.14 0.00 7.47

2-Year 6/2/2014 0.392 3.52 30.71 55.9% 25.2% 18.9% 0.19 0.01 7.03

2-Year 6/30/2014 0.511 3.23 29.75 53.6% 23.3% 23.1% 0.15 0.00 6.87

3-Year 4/15/2014 0.895 3.36 29.86 48.8% 24.0% 27.3% 0.04 0.00 10.35

3-Year 5/15/2014 0.928 3.40 28.86 47.4% 24.5% 28.1% 0.04 0.00 10.10

3-Year 6/16/2014 0.930 3.41 27.84 54.1% 19.4% 26.5% 0.05 0.00 9.48

5-Year 4/30/2014 1.732 2.79 34.95 36.5% 18.6% 44.9% 0.05 0.00 19.63

5-Year 6/2/2014 1.513 2.73 34.93 39.1% 10.5% 50.4% 0.07 0.01 19.17

5-Year 6/30/2014 1.670 2.74 34.94 38.2% 9.3% 52.5% 0.06 0.00 19.28

7-Year 4/30/2014 2.317 2.60 28.98 31.0% 19.1% 49.9% 0.02 0.00 21.92

7-Year 6/2/2014 2.010 2.60 28.96 35.6% 24.1% 40.4% 0.04 0.01 21.53

7-Year 6/30/2014 2.152 2.44 28.98 42.7% 16.7% 40.6% 0.02 0.00 21.62

10-Year 4/15/2014 2.720 2.76 20.97 40.1% 15.2% 44.7% 0.03 0.00 20.93

10-Year 5/15/2014 2.612 2.63 23.93 29.1% 21.6% 49.3% 0.06 0.00 24.87

10-Year 6/16/2014 2.648 2.88 20.96 44.5% 19.4% 36.1% 0.03 0.00 20.96

30-Year 4/15/2014 3.525 2.52 12.99 38.8% 17.9% 43.3% 0.01 0.00 27.57

30-Year 5/15/2014 3.440 2.09 15.97 51.2% 8.4% 40.4% 0.02 0.00 35.27

30-Year 6/16/2014 3.444 2.69 12.99 26.5% 21.8% 51.8% 0.01 0.00 27.75

2-Year FRN 4/30/2014 0.069 4.64 14.97 60.7% 4.8% 34.4% 0.03 0.00 0.45

2-Year FRN 5/30/2014 0.063 4.69 12.99 48.9% 9.4% 41.7% 0.01 0.00 0.26

2-Year FRN 6/27/2014 0.069 4.43 12.99 54.8% 5.1% 40.1% 0.01 0.00 0.14

Issue Settle Date Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards ($ bn)

% Primary 

Dealer* % Direct* % Indirect* Non-Competitive Awards ($ bn)

SOMA Add 

Ons ($ bn)

10-Yr Equivalent 

($ bn)**

5-Year 4/30/2014 -0.213 2.70 17.94 35.7% 5.9% 58.4% 0.06 0.00 10.44

10-Year 5/30/2014 0.339 2.91 12.96 27.5% 6.3% 66.3% 0.04 0.00 13.84

30-Year 6/30/2014 1.116 2.76 6.99 32.1% 8.2% 59.7% 0.01 0.00 19.69

Nominal Coupon Securities

TIPS
Financing Outlook

August 2014
Current Path of 2-Year and 3-Year Issuance

49

 Treasury initiated a series of 2-year and 3-year 

Treasury security reductions at the May 2014 

refunding.

 2-year was reduced by $1 billion per month from $32 

billion.

 3-year was reduced by $1 billion per month from $30 

billion.

 If Treasury cuts once more in August, 2-year 

and 3-year monthly issuance will reach $28 

billion and $26 billion, respectively. 

 This will result in a cumulative $92 billion of 

reductions through May 2015.

2-year 3-year

Base Case Reduction Base Case Reduction

2014 Apr-14 32 32 30 30

2014 May-14 32 31 30 29

2014 Jun-14 32 30 30 28

2014 Jul-14 32 29 30 27

2014 Aug-14 32 28 30 26

2014 Sep-14 32 28 30 26

2015 Oct-14 32 28 30 26

2015 Nov-14 32 28 30 26

2015 Dec-14 32 28 30 26

2015 Jan-15 32 28 30 26

2015 Feb-15 32 28 30 26

2015 Mar-15 32 28 30 26

2015 Apr-15 32 28 30 26

2015 May-15 32 28 30 26

Total 448 402 420 374

Difference (46) (46)
Overfunding in FY 2014/2015

50 *Over/underfunding assumes that 2-year and 3-year issuance sizes are reduced to and held at $28 billion and $26 billion, respectively. 

Figures also assume bills will be held constant at $1.454 trillion.

 The table below highlights projected borrowing needs, borrowing capacity and 

over/underfunding.*

 As a result of the reduction in issuance since the May refunding, Treasury will be 

overfunded by just ~$56 billion if the Federal Reserve redeems and $60 billion if they 

reinvest over FY 2014 and 2015. 

 This overfunding could be addressed by reducing bill issuance.

 The extent to which Treasury is underfunded from 2016 onwards will increase 

substantially due to the structural nature of deficits.

Federal Reserve Redeems Federal Reserve Reinvests

Forecasted Borrowing Needs Issuance Capacity Over/Underfunding Issuance Capacity Over/Underfunding

2014 657 680 23 680 23

2015 637 670 33 674 37

2016 636 427 (209) 602 (34)

2017 595 282 (313) 463 (132)

2018 538 334 (204) 653 115

2019 630 200 (430) 565 (65)

2020 647 153 (494) 411 (236)

2021 646 176 (470) 288 (358)

2022 677 296 (381) 296 (381)

2023 650 223 (427) 223 (427)

2024 587 179 (408) 179 (408)
Considerations for Developing the 

Optimal Treasury Cash Balance
 Historically, Treasury has sought to minimize cash balances, with a cash balance floor set at $5 

billion.

 This floor was established in the 1980s when auction sizes were substantially smaller than current 

auction sizes and Treasury faced a “negative carry” on cash balances which made holding large 

cash balances costly. Auctions were also less frequent in the 1980s than today.

 Prudent risk management during the 2008-2009 financial crisis resulted in Treasury increasing 

cash balances, but no formal minimum cash balance was ever set.

 From 2002 – 2008, the average daily cash balance was $26 billion. 

 From 2009 – 2014, the average daily cash balance was $63 billion. 

0

20

40

60

80

100

120

198019821984198619881990199219941996199820002002200420062008201020122014

$ bn

Yearly Average Settlement Sizes

BILLS NOMINAL and REAL COUPONS TOTAL

Treasury Cash Balance Buffer History 

52
Treasury’s Cash Balance Risks

53

 Projections of Treasury’s two main sources of cash are subject to risk: 

 Revenue (60 percent of total cash): Revenue projections are subject to fiscal forecast risk. 

 Auction Proceeds (40 percent of total cash): Auction proceed projections are subject to auction 

settlement and market access risk. 

 Historically, Treasury has focused only on risks associated with fiscal projection forecast errors.

 There is a large amount of data available for analysis and “proceeds risk” has historically been 

deemed to be very low. 

 However, several events made it clear that other risks, including settlement and market access 

risks, are real and could have a significant impact.

 December 2, 2013 delay of a 4-week bill auction due to IT issues

 Super Storm Sandy in October 2012

 September 11, 2001
Loss of market access – estimating how long

54

 Historical experience suggests that it is possible for financial markets to be disrupted for several 

business days. 

 Hurricane Sandy: 1.5 days

 September 11th: 2-3 days

 Cash required to cover the worst 1-5 days since FY2009 is relatively constant at approximately 

$331 billion

* Worst case scenario since FY2009

• Includes bills, notes, bonds 

maturing

• Fiscal flow includes interest 

payments on marketable debt, 

Medicare/Medicaid and social 

security payments, etc.

331

383

467

0

100

200

300

400

500

600

700

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

$ bn

Number of Days from Wednesday

Cash Required to Last X Number of Days*
Treasury’s Current Level of Coverage

55

 Historically, Treasury has only had enough cash to withstand a loss of market access for 

approximately 2 days.

 Treasury would have been protected against losing market access for 1 day roughly 80 

percent of the time.

 Treasury would have been protected against losing market access for 5 days less than 10 

percent of the time.

 Treasury’s current level of protection against losing market access is roughly the same as it was 

prior to the financial crisis.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1 2 3 4 5 6 7 8

# of Business Days

Frequency with which Treasury has had enough cash to pay all obligations w/o market access

2002 - 2008 2009 - 2014
Cash Shortfall from Loss of Market Access

56

 If Treasury lost market access for a short period of time, the U.S. government would 

face a substantial cash shortfall.

 Since the beginning of the financial crisis, on average, Treasury would have faced an $28 

billion cash shortfall if market access had been lost for 3 days.

 This shortfall increases to $89 billion if market access had been lost for 5 days and $239 billion 

if market access had been lost for 10 days.

(500)

(400)

(300)

(200)

(100)

0

100

200

200820092010201120122013

$ bn

End of Fiscal Year

Cash balance after 3 days w/o market 

access

Negative Positive Average

(500)

(400)

(300)

(200)

(100)

0

100

200

200820092010201120122013

$ bn

End of Fiscal Year

Cash balance after 5 days w/o market 

access

Negative Positive Average

(500)

(400)

(300)

(200)

(100)

0

100

200

200820092010201120122013

$ bn

End of Fiscal Year

Cash balance after 10 days w/o market 

access

Negative Positive Average
Framework Discussion

57
58

Volatility Presentation

Asset price volatility has declined over the past two years both in the 

United States and globally. At the same time, forward-looking measures of 

market uncertainty across a range of fixed income, equity, and foreign 

exchange markets have also declined. 

What are the Committee’s views on these developments and the factors 

that have contributed to the current environment of low volatility globally?
59

Current state of volatility

Monthly count of Bloomberg articles that contain the phrase “low volatility”.

? Theirs, unclear, mine, relentless comments
60

Current state of volatility

Credit Suisse Interest Rate Volatility Estimate: yield curve weighted index of normalized implied 

volatility on a rolling series of constant at-the-money one-month expiry swaptions weighted across 

benchmark maturities 2yr, 5yr, 10yr and 30yr.

? Theirs, unclear, mine, relentless comments
61

Factors contributing to low volatility

1. Actions by the Fed and ECB have significantly clipped the left tail risk, in terms of both economic 

outcomes and market outcomes (QE I)

2. As interest rates approached the zero lower bound, rate vol is lower by construction which leads 

to maturity extensions, lower term premia and declining volatility across other asset classes 

through a lower and more certain discount rate (QE II)

3. Suppression of yield and vol induces investors to take on more risk (QE III). The market clings to 

perception of certainty regarding outcomes, despite the Fed shifting commitment modes from time 

or level-based to data dependent. This stage of policy should eventually lead to increased 

uncertainty and risk.

? Theirs, unclear, mine, relentless comments Cross asset volatility through progression of central bank policy

0

50

100

150

200

250

0

10

20

30

40

50

60

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

3m10y bpvol

VIX and FX log vol

VIX index EUR/USD 3mth vol 3m10y vol (RHS)

QE I QE II and Operation Twist QE III
62

Short term price volatility versus long term economic uncertainty

Realized volatility is extremely low, which leads to lower implied volatility in a self-reinforcing loop.

-10%

10%

30%

50%

70%

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Implied and Realized Vols in Equities

VIX Index SPX 1mth realized vol

0

5

10

15

20 Implied and Realized Vols in FX

EUR/USD 1mth implied EUR/USD 1mth realized vol

0

50

100

150

200 Implied and Realized Vols in 10yr Rate (bpvol)

1m10y implied vol 1m10y realized vol

0%

20%

40%

60%

80%

100%

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

IG Implied & Realized Vol

IG CDX 3mth implied vol IG CDX 3mth realized vol
63

Short term price volatility versus long term economic uncertainty

Dispersion among Wall Street analyst forecasts for GDP is falling 

– VIX level on right hand scale 

– Standard deviation of US GDP forecasts provided to database on left hand scale
64

Short term price volatility versus long term economic uncertainty

The Global financial Stress Index (GFSI) measures 

• Risk as indicated by cross-asset measures of volatility, solvency and liquidity

• Hedging demand implied by equity and currency option skew

• Investor risk appetite gauged by trading volumes and flows into equities and high yield bonds 

and out of money markets

33 out of 39 indicators point to vol being too low.
65

Short term price volatility versus long term economic uncertainty

Realized volatility follows the business cycle – high around recessions, falling with recovery, 

bottoming out mid to late cycle before turning up again

5

10

15

20

25

30

35

5

10

15

20

25

30

35

Jan-37Jan-43Jan-49Jan-55Jan-61Jan-67Jan-73Jan-79Jan-85Jan-91Jan-97Jan-03Jan-09Jan-15

Recession S&P 500 Realized Vol (12m ma, rhs)

1m vol

3m vol

1987 Crash WorldCom 

Bankruptcy US 

Downgrade

Asian 

Crisis

* Realized vol is the annualized standard deviation of daily log changes in S&P 500 over a 1m window
66

Supply / demand factors in the options markets

Tail hedgers have decreased as evidenced by 

• Falling prices of downside puts on the S&P 

• Shrinking fund size of VIX ETF

0

1

2

3

4

5

6

7

8

9

10

1996199719981999200020012002200320042005200620072008200920102011201220132014

S&P 500 3m 90% Put Price (%)

0

500

1,000

1,500

2,000

2,500

3,000

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

USD millions

VIX ETF VXX

Total Fund Size USD millions
67

Supply / demand factors in the options markets

Convexity hedging by mortgage accounts has gone down significantly after the crisis because 

of lower issuance and the Fed’s QE purchases. QE mortgage purchases remove both duration 

and convexity from the market, making it one of the most powerful policy tools.

MBS Issuance

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Fed MBS holdings % outstanding
68

Supply / demand factors in the options markets

QE mortgage purchases remove both duration and convexity from the market, making it one of 

the most powerful policy tools.

Duration effect of QE Convexity effect of QE

 -

 50

 100

 150

 200

 250

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Estimated Dollar amount of DV01 added in a 

100bps selloff (in MM$)

Impact of convexity on Fed DV01 Impact of convexity on Index DV01

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Ratio Fed/Index (in %)

Dollar amount of DV01 (in MM$)

Ratio of DV01 Fed DV01 (in $MM)
69

Market complacency and excessive risk taking

Interest rate volatility can be viewed as a proxy for the corporate bond market and the interest rate 

at which people and companies borrow money.

Shown below is 1y10y interest rate vol with 5yr spreads of the credit default index of investment 

grade on the left and high yield on the left.

60

80

100

120

140

160

200

400

600

800

1000

1200

1400

1600

1800

1y10y bpvol

HY CDX

HY CDX 5yr spread bps (LHS) 1y10y bpvol (RHS)

60

80

100

120

140

160

40

90

140

190

240

290

1y10y bpvol

IG CDX

IG CDX 5yr spread bps (LHS) 1y10y bpvol (RHS)
70

Market complacency and excessive risk taking

Days with a 10% or greater correction in the S&P

Days in which SPX is at least 10% lower than the peak of the prior 6 months

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jun-84Jun-86Jun-88Jun-90Jun-92Jun-94Jun-96Jun-98Jun-00Jun-02Jun-04Jun-06Jun-08Jun-10Jun-12Jun-14

0

1

Days of 10% Correction SPX

Note the lack of 10% corrections during the past hiking cycles in 2004 and 1994
71

Market complacency and excessive risk taking

Against environment of low vol and low returns, the only way to achieve the same return targets is 

to take on more risk

- Ballooning AUM invested in hedge funds, now $2.7 trillion

- VAR-based risk management frameworks and risk-parity investment models in which volatility 

is an input that determines the amount of risk to take

2,801 

0

500

1,000

1,500

2,000

2,500

3,000

199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013

Q1 2014Q2 2014

AUM USD billions

Hedge fund AUM
72

Market complacency and excessive risk taking

Mostly unchanged target for investment returns from the pension community. Latest data from 

November 2013 shows the median target shifted to just under 8% in 2012, despite the yield on 

Moody’s AA index having fallen to 4.2%.

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Moody's Corporate AA Index
73

Financial market indicators of excessive risk taking

This represents the extra yield of owning pass-thru mortgage securities from the option value 

without embedded prepayment assumptions.
74

Financial market indicators of excessive risk taking

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Feb-98Feb-99Feb-00Feb-01Feb-02Feb-03Feb-04Feb-05Feb-06Feb-07Feb-08Feb-09Feb-10Feb-11Feb-12Feb-13Feb-14

S&P 500 implied vol term slope (% of 1m vol, 1m ma)

3m minus 1m 6m minus 3m

Equity vol term structure has held up against complacency in the market place.
-5%

0%

5%

10%

15%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

13%

15%

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

Feb-13

May-13

Aug-13

Nov-13

Feb-14

May-14

Aug-14

FX implied vol term slope (% of 1m vol, 1m ma) 

3m minus 1m 6m minus 3m

75

Financial market indicators of excessive risk taking

FX vol term structure is also near the steepest level in the last 5 years.
76

Financial market indicators of excessive risk taking

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

Jun-96Jun-97Jun-98Jun-99Jun-00Jun-01Jun-02Jun-03Jun-04Jun-05Jun-06Jun-07Jun-08Jun-09Jun-10Jun-11Jun-12Jun-13Jun-14

10y bond implied vol term slope (% of 1m vol, 1m ma)

3m minus 1m 6m minus 3m

Rate vol term structure is off the highs despite the Fed being closer to tightening than at any other 

point in the last 5 years.
77

Equity volatility term structures
78

Interest rate volatility term structures

25

45

65

85

105

125

145

165

185

205

225

Aug-04

Feb-05Sep-05

Mar-06

Oct-06

Apr-07

Nov-07

Jun-08

Dec-08

Jul-09

Jan-10

Aug-10

Feb-11Sep-11

Apr-12

Oct-12

May-13

Nov-13

Jun-14

Dec-14

Jul-15

Jan-16

Aug-16

Mar-17

Sep-17

Apr-18

bpvol

10yr rate vol term structures

2005 2006 2007 2008 2009

2010 2011 2012 2013 2014

Warning sign
79

Liquidity providers

Less warehouses for risk = higher storage costs
80

Conclusions

 Monetary policy and regulatory changes have contributed to the decline in volatility.

 Less demand for volatility across asset classes naturally lowers the price for such insurance.

 VAR-based analysis leads to self-reinforcing loops as low volatility causes models to recommend 

scaling up risk.

 The term structure of volatility is a powerful indicator; flatter vol curves would suggest excessive 

complacency and presage increasing risk.

 Volatility tends to rise mid-to-late stage of the business cycle as expansive endeavors increase 

through the system.

 An unexpected increase in volatility might come from broad-based selling of assets wanting to derisk in front of a turn in policy.

 With liquidity providers having declined in number and capacity, the system is less able to deal with 

such episodes of higher volatility. Institutions which deliver absolute returns or provide liquidity to 

the system would be most at risk.
81

Reference

 P6: Consensus Economics, UBS

 P7: Bank of America Merrill Lynch

 P8: Haver, Deutsche Bank

 P11: Citibank

 P14: HFR Global Hedge Fund Industry Report

 P15: Public Fund Survey

 P17: Deutsche Bank

 P18: Deutsche Bank. FX vol is computed on the currencies that make up the Deutsche Bank 

Currency Volatility Index.

 P19: Deutsche Bank