Presenta

Treasury Borrowing Advisory 

U.S. Department 

Office of De
Office of Debt Management

Notable items since May 2007

 OMB released its Mid-Session Review in mid-July:

– Revised down its FY 2007 budget deficit forecast from 

billion to $205 billion

– Marginally revised up its FY 2008 budget deficit foreca

billion

– Continues to forecast a budget surplus in 2012

 SLGS issuance has slowed from very high levels Discontinued issuance of the 3-year note Experienced another strong April tax season
Office of Debt Management

Year to date tax receipts continue to grow

Individual and Corporate Tax Receipts 

Fiscal Year to Date

0

200400600800

100012001400

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 

$ billions

FY FY FY FY FY 

FY07 Revenue YTD on pace to surpass last year's total fiscal year revenues
Office of Debt Management

YTD outlay growth continues at slower pace than years

Total Outlays 

Fiscal Year to Date

0

500

10001500200025003000

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 

$ billions

FY 2003FY 2004FY 2005FY 2006FY 2007

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

OMB expects improvement to budget deficits after 

Projected Budget Results

(+ Deficit/- Surplus)

-50

0

50

100150200250300

2006 2007 2008 2009 2010 2011 

$ billions
Office of Debt Management

Net SLGS Issuance in FY 2007 has been very highslowed recently

State and Local Governments (SLGS)

0

102030405060

$ Billions

Gross IssuesRedemptions

-10

-5

05

1015202530

2Q

3Q

4Q

1Q

2Q

3Q

4Q

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3Q

4Q

1Q

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1Q

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4Q

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

$ Billions

Net SLGs
Office of Debt Management

Marketable Debt Net Issuance Historically Low

-300-200-100

0

100200300400500

2000 2001 2002 2003 2004 2005 2006 

End of Fiscal Year

$ Billions

Net Marketable BorrowingBudget Deficit

*2007 Net marketable Borrowing includes $73 billion estimated for Q4. 2007 Budget Deficit from OMB's Mid Session Review.
Office of Debt Management

Leading to Decline in Bills Outstanding

Bills Outstanding

850900950

1,0001,0501,100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct 

$ Billions

2004 2005 2006 2007
Office of Debt Management

And Reduced Coupon Issuance

Net Coupon Issuance

-300-200-100

0

100200300400500

2000 2001 2002 2003 2004 2005 200

End of Fiscal Year

$ Billions

Net financing projections for FY 2007 are based on internal FY 2007 deficit estimate. Future residual financing needs are spread proportionally across auctioned securitie

the prior quarter and September 30, 2006 bills outstanding.
Office of Debt Management

Future Financing and Portfolio Considerations

 Market participants suggest that current auction sizes of b

coupon securities are at or near minimum sizes to ensure 

 The deficit has been cut in half ahead of schedule, and th

forecasts a balanced budget by 2012

 From February to July, the deficit forecast has dropped by 

$40 billion 

 We aim to preserve flexibility to address a range of fiscal 
Office of Debt Management

 In light of intermediate and longer-term fiscal trends as we

recent economic and market conditions, what advice wouCommittee give in terms of Treasury’s debt issuance?
The Costs of Inaction Regarding Entitle

Potential Implications for Treasury Debt Issuance, Inter

Overall Ma

Treasury Borrowing Advisory Committee Presentation to t
Executive Summary

• A long run Treasury financing model has been used to attempt to qthe potential implications of rising entitlement spending. • The output is based on three alternative baseline budget scenarios originally developed by the Congressional Budget Office. • The findings imply a very large future financing need under each oscenarios. 

• For example, even under the most optimistic budget outlo

2-year note issuance will be nearly $380 billion per month 

• In the most pessimistic scenario, 2-year note issuance re$1.9 trillion per month. 

• In relation to the size of the economy, it is estimated that gross coissuance will need to be between four and fifteen times as large as apresent by 2050. • The sharp elevation in the financing needs starts to become apparearly as 2020. 
1) Budget deficit forecast of $170 billion in FY 2007.2) CBO long range alternative budget scenarios A, B and C for FY 20

2050 (an interpolation was used for the FY 2008-2011 period). A these scenarios appears on the next page.

3) Hold Treasury bills at 25% of debt outstanding.4) Increase coupon sizes in proportion to their current share of gross 5) End of FY cash balance target remains at $45 billion.6) Net Non-marketable issuance and Miscellaneous Means of Financ

equal to zero after FY 2008.

7) No Entitlement Reform

Long Run Treasury Financing Model Assumptions

Source: CBO, The Long Term Budget Outlook, December 2005
Scenario A (Intermediate Spending/High Revenue) Medicare & Medicare Spending Excess cost growth of 1 percentage pointDefense Gradual phase down through 2024, then grow at CPI

Individual Income Taxes Current law (i.e., higher rates after 2010)

Scenario B (High Spending/High Revenue) Medicare & Medicare Spending Excess cost growth of 2.5 percentage pointsDefense FYDP1 through 2024, then grow at CPI

Individual Income Taxes Current law (i.e., higher rates after 2010)

Scenario C (High Spending/Low Revenue)Medicare & Medicare Spending Excess cost growth of 2.5 percentage pointsDefense FYDP1 through 2024, then grow at CPI

Individual Income Taxes Hold at long run average (18.3% of GDP)

Common Assumptions for All ScenariosNo Entitlement ReformSocial Security Benefits paid as scheduled under current law

Other Nondiscretionary Spending Hold at 2005 level as % of GDPOther Discretionary Spending Hold at historical share of GDP (3.6%)

Payroll Taxes Current lawOther Taxes Hold at 2014 level as share of GDP 

Scenario Analysis based on CBO Assumptions

1. FYDP - Future Years Defense Program (with allowances for cost risks and additional spending to support the war on terrorism).Source: CBO, The Long Term Budget Outlook, December 2005.
Scenario A - Intermediate Spending/High RevenueDebt/GDP Implications

0

102030405060708090

100

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 44 

% Treasury Debt/GDP
Scenario A - Intermediate Spending/High Revenue Gross Coupon Issuance/GDP Implications

02468

10121416

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 44 

% Gross Coupon Issuance/ GDP
Scenario A - Intermediate Spending/High Revenue Average Maturity of Debt Outstanding Implications

01234567

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 4

Years

Avera

ge Debt Maturit

y
Scenario A - Intermediate Spending/High RevenuePotential Interest Cost as a Percent of GDP

012345

93 98 03 08 13 18 23 28 33 38 

% Interest Expense/GDP
Scenario A - Intermediate Spending/High Revenue Potential Size of Average Monthly 2-Year and Quarterly 10-Y

0

50

100150200250300350400450

07 09 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 4

Average Monthly 2-Year IssuanceAverage Quarterly 10-Year Issuance

$ Billions
Scenario A - Intermediate Spending/High RevenuePotential Annual DV01 of Issuance

Scenario A (Intermediate Spending/High Revenue) - Total Annual DV01 Takedow

-

500

1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,5007,0007,5008,0008,500

1993

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20

Year

DV01 in $ millions
Scenario B - High Spending/High RevenueDebt/GDP Implications

0

50

100150200250300

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 44 

% Treasur

y Debt/GDP
Scenario B - High Spending/High RevenueGross Coupon Issuance/GDP Implications

05

101520253035404550

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 44 4

% Gross Coupon Issuance/ GDP
Scenario B - High Spending/High RevenueAverage Maturity of Debt Outstanding Implications

01234567

93 96 99 02 05 08 11 14 17 20 23 26 29 32 35 38 41 44 

Years

Avera

ge Debt Maturit

y
Scenario B - High Spending/High RevenuePotential Interest Expense as a Percent of GDP

02468

10121416

93 98 03 08 13 18 23 28 33 38 43 

% Interest Expense/GDP
Scenario B - High Spending/High RevenuePotential Size of Average Monthly 2-Year and Quarterly 10-Y

0

300600900

1,2001,500

07 10 13 16 19 22 25 28 31 34 37 40 43 4

Average Monthly 2-Year IssuanceAverage Quarterly 10-Year Issuance

$ Billions
Scenario B - High Spending/High RevenuePotential Annual DV01 of Issuance

Scenario B (High Spending/High Revenue) - Total Annual DV01 Takedown

0

2,0004,0006,0008,000

10,00012,00014,00016,00018,00020,00022,00024,00026,00028,000

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20

Year

DV01 in $millions
Scenario C - High Spending/Low Revenue Debt/GDP Implications

0

50

100150200250300350400450500

93 98 03 08 13 18 23 28 33 38 43 

% Treasury Debt/GDP
Scenario C - High Spending/Low RevenueGross Coupon Issuance/GDP Implications

0

1020304050607080

93 98 03 08 13 18 23 28 33 38 43 

% Gross Coupon Issuance/ GDP
Scenario C - High Spending/High RevenueAverage Maturity of Debt Outstanding Implications

01234567

93 98 03 08 13 18 23 28 33 38 43 

Years Average Debt Maturity
Scenario C - High Spending/Low Revenue Potential Interest Cost as a Percent of GDP

05

10152025

93 98 03 08 13 18 23 28 33 38 43 

% Interest Expense/GDP
Scenario C - High Spending/Low RevenuePotential Size of Average Monthly 2-Year and Quarterly 10-Y

0

500

1,0001,5002,0002,500

07 12 17 22 27 32 37 42 4

Average Monthly 2-Year IssuanceAverage Quarterly 10-Year Issuance

$ Billions
Scenario C - High Spending/Low Revenue Potential Annual DV01 of Issuance

Scenario C (High Spending/Low Revenue) - Total Annual DV01 Takedown

0

2,0004,0006,0008,000

10,00012,00014,00016,00018,00020,00022,00024,00026,00028,00030,00032,00034,00036,00038,00040,00042,00044,000

1993

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20

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DV01 in $ millions