Treasury Presentation to TBAC
Office of Debt Management

Fiscal Year 2017 Q2 Report
Table of Contents

2

I. Executive Summary p. 4

II. Fiscal

A. Quarterly Tax Receipts p. 6

B. Monthly Receipt Levels p. 7

C. Eleven Largest Outlays p. 8

D. Treasury Net Nonmarketable Borrowing p. 9

E. Cumulative Budget Deficits p. 10

F. Deficit and Borrowing Estimates p. 11

G. Budget Surplus/Deficit p. 12

III. Financing

A. Sources of Financing p. 15

B. OMB’s Projections of Net Borrowing from the Public p. 17

C. Interest Rate Assumptions p. 18

D. Net Marketable Borrowing on “Auto Pilot” Versus Deficit Forecasts p. 19

IV. Portfolio Metrics

A. Weighted Average Maturity of Marketable Debt Outstanding with Projections p. 24

B. Maturity Profile p. 25

V. Demand

A. Summary Statistics p. 30

B. Bid-to-Cover Ratios p. 31

C. Investor Class Awards at Auction p. 36

D. Primary Dealer Awards at Auction p. 40

E. Direct Bidder Awards at Auction p. 41

F. Foreign Awards at Auction p. 42
Section I:

Executive Summary

3
Receipts and Outlays

• Fiscal year-to-date, corporate receipts are $25 billion (or 17%) lower than the same period of the previous year, due largely to a statutory 

change in the due date for certain corporate taxes, from mid-March to mid-April. 

• Fiscal year-to-date, outlays related to Health and Human Services (HHS) have increased by $24 billion (or 5%) year-over-year; this 

increase was driven by increased Medicare and Medicaid payments. 

• Fiscal year-to-date, Treasury outlays increased by $24 billion (or 8%) as compared to the same period of the previous year, due largely to 

an increase in the inflation adjustment on TIPS.

• Fiscal year-to-date, Social Security Administration (SSA) expenditures increased by $13 billion (or 3%) year-over-year, resulting from an 

increase in program enrollment.

Sources of Financing in Fiscal Year 2017 

• Based on the Quarterly Borrowing Estimate, Treasury’s Office of Fiscal Projections currently projects a net marketable borrowing need 

of $26 billion for Q3 FY 2017, with an end-of-June cash balance of $200 billion. For Q4 FY 2017, net marketable borrowing need is 

projected to be $98 billion, with an end-of-September cash balance of $115 billion.

Projected Net Marketable Borrowing

• Between FY 2017 and 2019 Treasury’s net marketable borrowing could rise notably if the Federal Reserve allows the Treasury securities 

held in the SOMA portfolio to mature without reinvesting.

• As of the January 2017 Survey of Primary Dealers, the median expectation was for SOMA reinvestments to continue until June 2018.

Bid-to-Cover Ratios (BTC)

• BTC ratios for all securities were stable over the January to March period.

Highlights of Treasury’s May 2017 Quarterly Refunding Presentation

to the Treasury Borrowing Advisory Committee (TBAC)

4
Section II:

Fiscal

5
6 Source: United States Department of the Treasury 

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

Mar-12

Jul-12

Nov-12

Mar-13

Jul-13

Nov-13

Mar-14

Jul-14

Nov-14

Mar-15

Jul-15

Nov-15

Mar-16

Jul-16

Nov-16

Mar-17

Year-over-Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl FICA)
7

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

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

Mar-12

Jul-12

Nov-12

Mar-13

Jul-13

Nov-13

Mar-14

Jul-14

Nov-14

Mar-15

Jul-15

Nov-15

Mar-16

Jul-16

Nov-16

Mar-17

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

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

0

100

200

300

400

500

600

HHS

SSA

Defense

Treasury

Agriculture

Labor

VA

Transportation

OPM

Education

Other Defense Civil

$ bn

Eleven Largest Outlays

Jan - Mar FY 2016 Jan - Mar FY 2017
9 Source: United States Department of the Treasury 

(40)

(30)

(20)

(10)

0

10

20

30

Q2-07Q3-07Q4-07Q1-08Q2-08Q3-08Q4-08Q1-09Q2-09Q3-09Q4-09Q1-10Q2-10Q3-10Q4-10Q1-11Q2-11Q3-11Q4-11Q1-12Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14Q4-14Q1-15Q2-15Q3-15Q4-15Q1-16Q2-16Q3-16Q4-16Q1-17Q2-17

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

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

0

100

200

300

400

500

600

700

October

November

December

January

February

March

April

May

June

July

August

September

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2015 FY2016 FY2017
11

FY 2017-2019 Deficits and Net Marketable Borrowing Estimates In $ billions

Primary 

Dealers1 CBO2 CBO3 OMB MSR4 OMB5

FY 2017 Deficit Estimate 606 559 433 441 504

FY 2018 Deficit Estimate 699 487 383 330 454

FY 2019 Deficit Estimate 788 601 518 427 550

FY 2017 Deficit Range 500-700

FY 2018 Deficit Range 478-951

FY 2019 Deficit Range 600-950

FY 2017 Net Marketable Borrowing Estimate 593 670 508 419* 419*

FY 2018 Net Marketable Borrowing Estimate 799 578 452 436 561

FY 2019 Net Marketable Borrowing Estimate 869 676 578 534 659

FY 2017 Net Marketable Borrowing Range 406-785

FY 2018 Net Marketable Borrowing Range 550-1150

FY 2019 Net Marketable Borrowing Range 670-1100

Estimates as of: Apr-17 Jan-17 Mar-16 Jul-16 Feb-16

1Based on primary dealer feedback on April 24, 2017. Estimates above are averages. 

2Summary Table 1 of CBO's "The Budget and Economic Outlook: 2017 to 2027"

3Table 1 and 2 of CBO's "An Analysis of the President's 2017 Budget"

4Table S-11 of OMB's “The FY2017 Mid-Session Review” 

5Table S-13 of OMB's “Budget of the United States Government, Fiscal Year 2017” 

* OFP's FY 2017 Net Marketable Borrowing Estimate.
Projections are from Table S-11 of “The FY2017 Mid-Session Review.” 12

OMB’s Projection

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

0%

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

20072008200920102011201220132014201520162017201820192020202120222023202420252026

% of GDP

$ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit (LHS) Surplus/Deficit (RHS)
Section III:

Financing

13
14

Assumptions for Financing Section (pages 15 to 21)

• Portfolio and SOMA holdings as of 03/31/2017.

• SOMA reinvestments until June 2018, followed by SOMA redemptions until and including February 

2022. These assumptions are based on the median expectations from the January 2017 FRB-NY Survey 

of Primary Dealers. 

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

03/31/2017, while using an average of ~$1.8 trillion of Bills outstanding. 

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

as of 03/31/2017. 

• No attempt was made to match future financing needs. 
15

Sources of Financing in Fiscal Year 2017 Q2

*An end-of-March 2017 cash balance of $92 billion versus a beginning-of-January 2017 cash balance of $399 billion. By keeping the cash balance 

constant, Treasury arrives at the net implied funding number. 

Gross issuance values include SOMA add-ons.

Net Bill Issuance (61) Security Gross Maturing Net Gross Maturing Net

Net Coupon Issuance 101 4-Week 548 563 (15) 1,203 1,173 30

Subtotal: Net Marketable Borrowing 40 13-Week 450 505 (55) 955 1,007 (52)

26-Week 372 437 (65) 799 765 34

Ending Cash Balance 92 52-Week 80 74 6 140 110 30

Beginning Cash Balance 399 CMBs 138 70 68 138 70 68

Subtotal: Change in Cash Balance (307) Bill Subtotal 1,588 1,649 (61) 3,235 3,125 110

Net Implied Funding for FY 2017 Q2* 347

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 44 41 3 85 82 3

2-Year 116 105 11 172 162 10

3-Year 76 90 (14) 153 180 (27)

5-Year 152 143 8 225 216 9

7-Year 125 131 (7) 185 196 (11)

10-Year 67 22 45 135 45 89

30-Year 41 0 41 84 19 65

5-Year TIPS 0 0 0 14 0 14

10-Year TIPS 26 21 5 38 21 18

30-Year TIPS 8 0 8 13 0 13

Coupon Subtotal 654 553 101 1,106 921 185

Total 2,242 2,202 40 4,341 4,046 295

Coupon Issuance Coupon Issuance

January - March 2017 January - March 2017 Fiscal Year-to-Date

Bill Issuance Bill Issuance

January - March 2017 Fiscal Year-to-Date
16

Sources of Financing in Fiscal Year 2017 Q3

*Keeping announced issuance sizes and patterns constant for Nominal Coupons, TIPS, and FRNs as of 03/31/2017. 

**Assumes an end-of-June 2017 cash balance of $200 billion versus a beginning-of-April 2017 cash balance of $92 billion.

Financing Estimates released by the Treasury can be found here: http://www.treasury.gov/resource-center/data-chart-center/quarterlyrefunding/Pages/Latest.aspx

Assuming Constant Coupon Issuance Sizes*

Treasury Announced Net Marketable Borrowing** 26

Net Coupon Issuance 74

Implied Change in Bills (48)

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 45 41 4 130 123 7

2-Year 88 52 36 260 214 46

3-Year 80 87 (7) 233 267 (34)

5-Year 115 132 (17) 340 348 (8)

7-Year 95 95 (1) 280 291 (11)

10-Year 71 26 45 206 71 134

30-Year 44 16 28 128 34 93

5-Year TIPS 16 48 (32) 30 48 (18)

10-Year TIPS 12 0 12 51 21 30

30-Year TIPS 6 0 6 19 0 19

Coupon Subtotal 571 496 74 1,676 1,417 259

April - June 2017

April - June 2017 Fiscal Year-to-Date

Coupon Issuance Coupon Issuance
573

436

534 530

550

652 667 650

739

808

55%

60%

65%

70%

75%

80%

(400)

(200)

0

200

400

600

800

1,000

2017201820192020202120222023202420252026

$ bn

OMB's Projection of Borrowing from the Public

Primary Deficit Net Interest Other Debt Held by Public

as % of GDP (RHS)

Debt Held by Public Net of

Financial Assets as a % of GDP (RHS)

17

OMB’s projections of net borrowing from the public are from Table S-11 of “The FY2017 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 233 3.8

Net Interest 5,000 81.4

Other 906 14.8

Total 6,139 100.0

FY2017 - FY2026 Cumulative Total
OMB's economic assumption of the 10-Year Treasury Note rates are from Table S-11 of “The FY2017 Mid-Session Review.” The forward rates 18

are the implied 10-Year Treasury Note rates on March 31 of that year.

1

1.5

2

2.5

3

3.5

4

4.5

20172018201920202021202220232024202520262027

10-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note

OMB FY 2017 MSR Implied Forward Rates as of 03/31/2017

10-Year Treasury Rate of 2.42% 

as of 03/31/2017
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 11. OMB's projections of net borrowing from the public are from Table S-11 of 

“The FY2017 Mid-Session Review.” CBO's estimates of the borrowing from the public are Summary Table 1 of “The Budget and Economic 

Outlook: 2017 to 2027.” See table at the end of this section for details.

*Does not reflect SOMA reinvestments after June 2018 and before February 2022. 

0

200

400

600

800

1,000

1,200

1,400

1,600

2017201820192020202120222023202420252026

Fiscal Year

With Fed Reinvestments ($ bn)

OMB's FY 2017 Mid-Session Review

PD Survey Marketable Borrowing Estimates

OFP's FY 2017 Net Marketable Borrowing Estimate

0

200

400

600

800

1,000

1,200

1,400

1,600

20172018201920202021202220232024202520262027

Fiscal Year

Without Fed Reinvestments ($ bn)*

Projected Net Borrowing

CBO's "The Budget and Economic Outlook: 2017 to

2027"
20 Assumes normalization will be complete by FY 2023, which implies no additional funding gap.

0 

(106)

(431)

(342)

(227)

(110)

0 

(500)

(450)

(400)

(350)

(300)

(250)

(200)

(150)

(100)

(50)

0

2017

2018

2019

2020

202120222023

$ bn

Fiscal Year

Additional Funding Gap Assuming No SOMA Roll after June 2018
21

Historical Net Marketable Borrowing and Projected Net Borrowing 

Assuming Future Issuance Remains Constant, $ billions

Net Borrowing capacity does not reflect SOMA reinvestments after June 2018 and before February 2022. 

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

“The FY2017 Mid-Session Review.” CBO's estimates of the borrowing from the public are from Table 1 and 2 of “The Budget and Economic 

Outlook: 2017 to 2027.”

*OFP’s FY 2017 Net Marketable Borrowing Estimate

Fiscal 

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

Historical/Projected 

Net Borrowing 

Capacity

OMB's FY 2017 MidSession Review

CBO's "The Budget and 

Economic Outlook: 

2017 to 2027"

Primary Dealer 

Survey

2012 139 148 738 90 0 1,115 

2013 (86) 86 720 111 0 830 

2014 (119) (92) 669 88 123 669 

2015 (53) (282) 641 88 164 558 

2016 289 (82) 477 64 47 795 

2017 198 9 292 55 9 562 419* 670 593 

2018 0 121 293 55 3 472 436 578 799 

2019 0 (24) 67 42 (9) 76 534 676 869 

2020 0 (86) 83 15 (9) 3 530 753 

2021 0 (76) 99 (5) 0 17 550 859 

2022 0 12 141 (14) 2 141 652 1,017 

2023 0 44 157 (13) 7 195 667 1,055 

2024 0 30 136 (13) 1 154 650 1,082 

2025 0 13 123 (53) (1) 82 739 1,220 

2026 0 (18) 174 (45) (2) 109 808 1,352 

2027 0 5 151 (36) (3) 117 1,463 
Section IV:

Portfolio Metrics

22
23

Assumptions for Portfolio Metrics Section (pages 24 to 28) and Appendix

• Portfolio and SOMA holdings as of 03/31/2017.

• SOMA reinvestments until June 2018, followed by SOMA redemptions until and including February 

2022. These assumptions are based on the median expectations from the January 2017 FRB-NY Survey 

of Primary Dealers. 

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

03/31/2017, while using an average of ~$1.8 trillion of Bills outstanding. 

• 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 

as of 03/31/2017. 

• OMB’s estimates of borrowing from the public are Table S-11 of the “Fiscal Year 2017 Mid-Session 

Review.”
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.

40

45

50

55

60

65

70

75

80

85

198019821984198619881990199219941996199820002002200420062008201020122014201620182020202220242026

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 2017 Q2

70.0 months on

03/31/2017

59.3 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 25

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

0

5

10

15

20

25

2017201820192020202120222023202420252026

$ tr

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
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 44).

Recent and Projected Maturity Profile, $ billions

End of Fiscal Year <= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10 Total (0,5]

2009 2,702 774 663 962 559 643 695 6,998 5,101

2010 2,563 1,141 895 1,273 907 856 853 8,488 5,872

2011 2,620 1,334 980 1,541 1,070 1,053 1,017 9,616 6,476

2012 2,951 1,373 1,104 1,811 1,214 1,108 1,181 10,742 7,239

2013 2,939 1,523 1,242 1,965 1,454 1,136 1,331 11,590 7,669

2014 2,935 1,739 1,319 2,207 1,440 1,113 1,528 12,281 8,199

2015 3,097 1,775 1,335 2,382 1,478 1,121 1,654 12,841 8,589

2016 3,423 1,828 1,538 2,406 1,501 1,151 1,800 13,648 9,195

2017 3,675 2,029 1,507 2,436 1,469 1,182 1,948 14,245 9,646

2018 3,905 2,010 1,540 2,470 1,526 1,194 2,061 14,707 9,926

2019 3,890 2,097 1,619 2,569 1,628 1,269 2,200 15,273 10,175

2020 3,945 2,190 1,607 2,726 1,666 1,286 2,414 15,834 10,468

2021 4,038 2,156 1,777 2,788 1,690 1,331 2,636 16,418 10,760

2022 4,005 2,383 1,826 2,869 1,794 1,328 2,898 17,103 11,083

2023 4,232 2,422 1,863 2,900 1,871 1,345 3,177 17,809 11,417

2024 4,309 2,495 1,899 3,036 1,946 1,368 3,443 18,497 11,740

2025 4,344 2,582 1,927 3,321 1,961 1,400 3,741 19,276 12,175

2026 4,432 2,572 2,163 3,377 2,069 1,480 4,033 20,125 12,544
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%

2017201820192020202120222023202420252026

Percent Compositioin

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
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 44).

End of Fiscal Year <= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10 (0,3] (0,5]

2009 38.6 11.1 9.5 13.7 8.0 9.2 9.9 59.1 72.9

2010 30.2 13.4 10.5 15.0 10.7 10.1 10.0 54.2 69.2

2011 27.2 13.9 10.2 16.0 11.1 10.9 10.6 51.3 67.3

2012 27.5 12.8 10.3 16.9 11.3 10.3 11.0 50.5 67.4

2013 25.4 13.1 10.7 17.0 12.5 9.8 11.5 49.2 66.2

2014 23.9 14.2 10.7 18.0 11.7 9.1 12.4 48.8 66.8

2015 24.1 13.8 10.4 18.5 11.5 8.7 12.9 48.3 66.9

2016 25.1 13.4 11.3 17.6 11.0 8.4 13.2 49.7 67.4

2017 25.8 14.2 10.6 17.1 10.3 8.3 13.7 50.6 67.7

2018 26.5 13.7 10.5 16.8 10.4 8.1 14.0 50.7 67.5

2019 25.5 13.7 10.6 16.8 10.7 8.3 14.4 49.8 66.6

2020 24.9 13.8 10.1 17.2 10.5 8.1 15.2 48.9 66.1

2021 24.6 13.1 10.8 17.0 10.3 8.1 16.1 48.6 65.5

2022 23.4 13.9 10.7 16.8 10.5 7.8 16.9 48.0 64.8

2023 23.8 13.6 10.5 16.3 10.5 7.6 17.8 47.8 64.1

2024 23.3 13.5 10.3 16.4 10.5 7.4 18.6 47.1 63.5

2025 22.5 13.4 10.0 17.2 10.2 7.3 19.4 45.9 63.2

2026 22.0 12.8 10.7 16.8 10.3 7.4 20.0 45.6 62.3
Section V:

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 2017 Q2 Auctions

Security 

Type Term Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards 

($bn)

% 

Primary 

Dealer*

% 

Direct*

% 

Indirect*

Non-Competitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)**

Bill 4-Week 0.575 3.4 542.1 58.9 8.4 32.7 4.6 0.0 4.8

Bill 13-Week 0.601 3.4 440.5 59.1 7.9 33.0 5.7 0.0 12.7

Bill 26-Week 0.712 3.4 361.2 54.3 2.6 43.1 5.2 0.0 21.0

Bill 52-Week 0.887 3.3 78.2 51.0 3.1 45.9 0.8 0.0 9.0

Bill CMB 0.647 3.4 138.0 61.9 4.3 33.8 0.0 0.0 1.4

Coupon 2-Year 1.234 2.7 77.4 35.9 13.4 50.7 0.5 8.4 19.3

Coupon 3-Year 1.508 2.8 71.7 38.6 7.7 53.7 0.2 4.1 25.3

Coupon 5-Year 1.958 2.3 101.8 30.6 5.9 63.5 0.2 11.0 60.9

Coupon 7-Year 2.249 2.5 84.0 22.0 8.8 69.2 0.0 9.0 68.2

Coupon 10-Year 2.408 2.5 62.9 23.6 9.4 67.0 0.1 3.8 67.1

Coupon 30-Year 3.028 2.3 39.0 27.9 7.3 64.8 0.0 2.4 92.5

TIPS 10-Year 0.450 2.3 23.9 17.9 11.0 71.1 0.1 2.2 28.8

TIPS 30-Year 0.923 2.3 7.0 23.6 6.6 69.8 0.0 1.0 23.6

FRN 2-Year 0.128 3.2 41.0 61.5 0.9 37.6 0.0 2.5 0.0

Total Bills 0.636 3.4 1,559.9 57.8 6.3 36.0 16.4 0.0 48.9

Total Coupons 1.972 2.5 436.9 29.9 8.7 61.3 0.9 38.7 333.4

Total TIPS 0.557 2.3 30.9 19.2 10.0 70.8 0.1 3.1 52.3

Total FRN 0.128 3.2 41.0 61.5 0.9 37.6 0.0 2.5 0.0
31

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Mar-07Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13Mar-14Mar-15Mar-16Mar-17

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

2

2.5

3

3.5

4

4.5

5

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs

(6-Month Moving Average)
33

1

1.5

2

2.5

3

3.5

4

4.5

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

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

1

1.5

2

2.5

3

3.5

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

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

Mar-06Mar-07Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13Mar-14Mar-15Mar-16Mar-17

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 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

13-week moving average

Percent Awarded in Bill Auctions by Investor Class 

(13-Week 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 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

6-month moving average

Percent Awarded in 2-, 3-, and 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 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

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 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

70%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

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. 

10%

20%

30%

40%

50%

60%

70%

80%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction

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

2/3/5-Year (6-month moving average) 7/10/30-Year (6-month moving average)

TIPS (6-month moving average)
41 Excludes SOMA add-ons. 

0%

5%

10%

15%

20%

25%

30%

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

% of Total Competitive Amount Awarded

Direct Bidder Awards at Auction

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

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2,3,5 7,10,30 TIPS FRN
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%

2017201820192020202120222023202420252026

End of Fiscal Year

Projected Portfolio Composition by Issuance Type

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

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 11.5 33.0 46.0 79.0 8.5 1.0

2015 10.6 29.4 49.0 78.3 8.8 2.2

2016 12.1 27.0 49.6 76.6 8.9 2.4

2017 13.0 26.0 49.6 75.6 9.0 2.4

2018 12.5 25.9 49.9 75.8 9.3 2.4

2019 12.1 26.5 49.8 76.3 9.5 2.2

2020 11.7 26.9 50.0 76.9 9.4 2.1

2021 11.2 27.1 50.4 77.5 9.2 2.0

2022 10.8 27.3 51.0 78.3 9.0 1.9

2023 10.4 27.5 51.5 79.0 8.8 1.9

2024 10.0 27.4 52.2 79.6 8.6 1.8

2025 9.6 27.5 53.0 80.6 8.1 1.7

2026 9.2 27.6 53.8 81.4 7.8 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*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

4-Week 1/5/2017 0.475 3.25 44.5 61.6 7.1 31.3 0.4 0.0 0.4

4-Week 1/12/2017 0.500 3.46 44.6 73.8 8.0 18.3 0.3 0.0 0.4

4-Week 1/19/2017 0.520 3.54 44.6 57.3 1.8 40.9 0.3 0.0 0.4

4-Week 1/26/2017 0.480 3.36 44.6 54.5 10.4 35.1 0.3 0.0 0.4

4-Week 2/2/2017 0.490 3.45 44.5 60.1 8.4 31.6 0.4 0.0 0.4

4-Week 2/9/2017 0.530 3.46 44.6 55.2 6.6 38.2 0.3 0.0 0.4

4-Week 2/16/2017 0.515 3.41 44.6 64.0 10.7 25.3 0.3 0.0 0.4

4-Week 2/23/2017 0.480 3.60 34.6 64.4 11.2 24.4 0.3 0.0 0.3

4-Week 3/2/2017 0.400 3.96 17.5 65.3 14.9 19.8 0.4 0.0 0.2

4-Week 3/9/2017 0.570 3.81 14.6 56.9 2.5 40.6 0.3 0.0 0.1

4-Week 3/16/2017 0.770 3.40 54.6 51.8 7.2 40.9 0.3 0.0 0.5

4-Week 3/23/2017 0.745 3.17 54.5 55.2 10.9 33.8 0.4 0.0 0.5

4-Week 3/30/2017 0.745 3.21 54.5 52.9 9.6 37.5 0.4 0.0 0.5

13-Week 1/5/2017 0.530 3.70 33.5 45.1 11.1 43.8 0.4 0.0 1.0

13-Week 1/12/2017 0.510 3.64 33.5 68.2 4.7 27.1 0.4 0.0 1.0

13-Week 1/19/2017 0.530 3.22 33.5 71.6 4.0 24.4 0.4 0.0 1.0

13-Week 1/26/2017 0.505 3.67 33.5 53.9 9.5 36.6 0.4 0.0 1.0

13-Week 2/2/2017 0.515 3.51 33.4 52.8 6.8 40.4 0.4 0.0 1.0

13-Week 2/9/2017 0.530 3.30 33.4 73.8 8.4 17.9 0.4 0.0 1.0

13-Week 2/16/2017 0.540 3.33 33.3 62.7 9.5 27.8 0.5 0.0 1.0

13-Week 2/23/2017 0.535 3.33 32.6 60.7 9.0 30.3 0.4 0.0 1.0

13-Week 3/2/2017 0.515 3.35 33.3 60.3 10.1 29.7 0.4 0.0 0.9

13-Week 3/9/2017 0.745 3.22 29.5 54.3 4.4 41.2 0.4 0.0 0.8

13-Week 3/16/2017 0.780 3.51 35.3 46.0 7.0 47.1 0.5 0.0 1.0

13-Week 3/23/2017 0.760 3.08 38.3 62.8 10.0 27.2 0.5 0.0 1.1

13-Week 3/30/2017 0.780 3.19 37.5 56.3 7.6 36.2 0.5 0.0 1.1

26-Week 1/5/2017 0.630 3.62 27.5 52.3 3.7 44.0 0.4 0.0 1.6

26-Week 1/12/2017 0.590 3.74 27.4 55.6 2.3 42.1 0.4 0.0 1.6

26-Week 1/19/2017 0.605 3.35 27.3 62.0 2.7 35.2 0.5 0.0 1.6

26-Week 1/26/2017 0.600 3.69 26.6 50.0 3.2 46.8 0.4 0.0 1.6

26-Week 2/2/2017 0.625 3.47 27.4 56.2 2.3 41.5 0.3 0.0 1.6

26-Week 2/9/2017 0.620 3.64 27.2 38.6 2.0 59.4 0.4 0.0 1.6

26-Week 2/16/2017 0.645 3.25 27.2 55.8 1.9 42.3 0.5 0.0 1.6

26-Week 2/23/2017 0.670 3.25 26.6 54.7 1.4 43.8 0.4 0.0 1.6

26-Week 3/2/2017 0.670 3.11 27.4 68.6 5.7 25.7 0.4 0.0 1.6

26-Week 3/9/2017 0.835 3.72 23.3 48.1 1.7 50.2 0.4 0.0 1.3

26-Week 3/16/2017 0.910 3.13 29.3 50.0 0.7 49.3 0.4 0.0 1.7

26-Week 3/23/2017 0.890 3.10 32.3 58.7 3.7 37.6 0.4 0.0 1.8

26-Week 3/30/2017 0.905 3.23 31.5 53.4 2.7 44.0 0.5 0.0 1.8

52-Week 1/5/2017 0.870 3.39 19.8 47.9 1.9 50.2 0.2 0.0 2.2

52-Week 2/2/2017 0.810 3.48 19.8 46.2 4.3 49.5 0.2 0.0 2.3

52-Week 3/2/2017 0.850 3.14 19.8 60.0 3.0 37.0 0.2 0.0 2.2

52-Week 3/30/2017 1.025 3.17 18.8 49.9 3.2 46.9 0.2 0.0 2.3

CMB 2/9/2017 0.525 3.48 50.0 56.4 5.3 38.4 0.0 0.0 0.5

CMB 3/9/2017 0.515 3.68 20.0 62.2 4.0 33.8 0.0 0.0 0.0

CMB 3/14/2017 0.770 3.02 33.0 75.7 3.5 20.8 0.0 0.0 0.4

CMB 3/16/2017 0.780 3.31 35.0 56.8 3.6 39.6 0.0 0.0 0.4

Bills
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*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

2-Year 1/31/2017 1.210 2.68 25.8 41.9 9.3 48.8 0.2 1.6 6.2

2-Year 2/28/2017 1.230 2.82 25.8 30.1 20.1 49.8 0.2 3.6 6.6

2-Year 3/31/2017 1.261 2.73 25.7 35.7 10.8 53.6 0.2 3.1 6.5

3-Year 1/17/2017 1.472 2.97 23.9 38.8 6.6 54.6 0.1 1.3 8.4

3-Year 2/15/2017 1.423 2.78 23.9 34.7 8.1 57.2 0.1 2.8 9.0

3-Year 3/15/2017 1.630 2.74 23.8 42.2 8.4 49.4 0.1 0.0 7.9

5-Year 1/31/2017 1.988 2.38 34.0 32.1 4.6 63.3 0.0 2.2 19.6

5-Year 2/28/2017 1.937 2.29 33.9 33.3 8.4 58.2 0.1 4.7 20.8

5-Year 3/31/2017 1.950 2.37 33.9 26.4 4.8 68.9 0.1 4.1 20.6

7-Year 1/31/2017 2.335 2.45 28.0 20.7 6.6 72.8 0.0 1.8 21.8

7-Year 2/28/2017 2.197 2.49 28.0 24.8 11.4 63.8 0.0 3.9 23.3

7-Year 3/31/2017 2.215 2.56 28.0 20.5 8.4 71.1 0.0 3.4 23.1

10-Year 1/17/2017 2.342 2.58 20.0 20.7 8.7 70.5 0.0 1.1 21.1

10-Year 2/15/2017 3.005 2.25 15.0 28.9 4.9 66.2 0.0 1.7 37.6

10-Year 3/15/2017 3.170 2.34 12.0 25.8 13.1 61.1 0.0 0.0 26.4

30-Year 1/31/2017 0.436 2.45 12.9 15.9 7.0 77.1 0.1 0.8 15.3

30-Year 3/31/2017 0.466 2.23 11.0 20.4 15.6 64.1 0.0 1.3 13.5

30-Year 2/28/2017 0.923 2.25 7.0 23.6 6.6 69.8 0.0 1.0 23.6

2-Year FRN 1/31/2017 0.140 3.16 15.0 73.1 1.5 25.4 0.0 1.0 0.0

2-Year FRN 2/24/2017 0.133 3.08 13.0 50.9 0.4 48.7 0.0 0.0 0.0

2-Year FRN 3/31/2017 0.109 3.43 13.0 58.8 0.8 40.4 0.0 1.6 0.0

Issue Settle Date Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % Indirect*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

10-Year TIPS 1/31/2017 0.436 2.45 12.9 15.9 7.0 77.1 0.1 0.8 15.3

10-Year TIPS 3/31/2017 0.466 2.23 11.0 20.4 15.6 64.1 0.0 1.3 13.5

30-Year TIPS 2/28/2017 0.923 2.25 7.0 23.6 6.6 69.8 0.0 1.0 23.6

Nominal Coupons

TIPS
Office of Debt Management

Review of Treasury Cash Balance Policy

May 2017
Current Level of Coverage

2

 Since May 2015, Treasury has maintained sufficient liquidity to withstand a loss of market access for an average of 

approximately 7 days:

 Treasury would have been protected against losing market access for 5 days approximately 79 percent of the time 

and for 10 days roughly 28 percent of the time.

 The debt limit impasse during the fall of 2015 is the predominant reason for Treasury missing its 5-day 

liquidity target 21 percent of the time.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10

# of Business Days

How Frequently Could Treasury Pay All Obligations 

without Market Access?

Jan. 2012 to May 2015 May 2015 to Mar. 2017
Cash Shortfall from Loss of Market Access

3

 If Treasury lost market access for more than a short period of time, the U.S. government could face a substantial cash 

shortfall:

 Since May 2015, on average, Treasury would have a cash surplus of $86 billion if market access had been lost for 

5 days.

 However, if market access had been lost for 10 days, this cash surplus would become a shortfall averaging $73 

billion over the same timeframe.

($400)

($300)

($200)

($100)

$0

$100

$200

$300

$400

2012 2013 2014 2015 2016 2017

billions

Net cash after 5 days w/o market access

($600)

($500)

($400)

($300)

($200)

($100)

$0

$100

$200

2012 2013 2014 2015 2016 2017

billions

Net cash after 10 days w/o market access
Treasury Borrowing Advisory Committee Presentation

May 2017

Charge: Consistent with the discussion at February 2017 TBAC meeting, in event that the Federal Reserve normalizes the SOMA portfolio and begins to redeem its Treasury holdings, Treasury would like the Committee’s views on funding these redemptions. Please comment on the potential timing and pacthe normalization process as well as any pricing impacts on fixed income ma
Source: Federal Reserve H.4.1

* See Ferris, Kim and Schlusche, “Confidence Interval Projections of the Federal Reserve Balance Sheet and Income”, January 2017

Fed Balance Sheet: What is “Normal”?

0

500

100015002000250030003500400045005000

05 07 09 11 13 15 17 19 21

Bil. $

Total Assets

Growth with Nominal GDP

Federal Reserve Assets Excess Bank Re

0

500

10001500200025003000

05 07 09 11 13 15 

Mil. $

“Arbitrar$500bn 

Assumption usFed Staff study

The amount of MBS and Treasuries that the Fed will need to roll off in order achieve a “normal” balance sheet will be determined, in large part, by their texcess bank reserves. 
Source: Federal Reserve H.4.1

Fed Balance Sheet: What is “Normal”?

US Treasury Deposits With the Fed Foreign Official R

0

50

100150200250300350400450

05 06 07 08 09 10 11 12 13 14 15 16 17

Bil. $

0

50

100150200250300

05 06 07 08 09 10 11 12 

Bil. $

Excess reserves – rather than the overall amount of Fed assets – should be main determinant of what is “normal” largely because some important items Fed’s balance sheet are at much different levels today than pre-crisis.

Recent decline is temporary and is tied to debt ceiling. 
Note: assumptions used for other Fed balance items are identical to those used by Ferris, Kim and Schlusche, “Confidence Interval Projections of the Fe

Balance Sheet and Income”, January 2017Source: Author’s calculations

Excess Reserves Under Alternative Balance Sheet Normalization 

Excess Reserves: MBS Run-off Only (Bil. $)

Maintain 

Current 

Yields

+ 50bp + 100bp

2017 1759 1759 17592018 1488 1521 15382019 1251 1306 13372020 1025 1096 11362021 816 897 9452022 624 709 7622023 439 526 581

Excess Reserves: Treasury & MB(Bil. $)

Maintain

Current 

Yields

+ 50bp 

2017 1759 1759 2018 1063 1095 2019 434 489 2020 n.a. 35 2021 n.a. n.a. 2022 n.a. n.a. 2023 n.a. n.a. 

The scenario on the left estimates MBS prepayments and the associated level of excess at yearend, using MBS run-off starting at the beginning of 2018, assuming 10-yr Treasurremain near current levels, rise 50 bp over the balance of 2017 (and hold at that level) obp over the balance of 2017 (and hold at that level). The scenario on the right assumes both MBS (using the same three yield assumptions) and Treasuries starting at the begin2018. Observations labeled n.a. reflect negative values.
Assumptions Used to Generate Financing Gap Estimate

s

• Budget Deficit (4 alternatives): CBO baseline and Treasury Primary Dea

Survey (median, high, low). Change in Primary Dealer forecast set equchange in CBO baseline after 2019.

• Fed rollovers cease at the beginning of 2018 and resume in mid-2020.• Cash balance target equals $400 bil at end of 2017 and grows in line wi

nominal GDP thereafter.

• Nonmarketable borrowing and other means of finance hold steady over 

forecast horizon (in line with the most recently published OMB budget estimates).

• Hold gross coupon (including TIPS and FRNs) sizes at current levels an

net bill issuance to zero after FY 2017. 

• Financing Gap = Budget Deficit - Net Marketable Coupon Issuance + Ch

in Cash Balance - Net Nonmarketable Issuance - Other Means of Finan
Source: Congressional Budget Office, New York Fed, Author’s calculations

Estimating the Treasury’s Financing Gap

Fiscal Deficit (Bil. $)

CBO Baseline Primary Dealer Survey

Low Median High

2017 -559 -525 -661 -1,0102018 -487 -587 -771 -1,0352019 -601 -690 -863 -1,2002020 -684 n.a. n.a. n.a.2021 -797 n.a. n.a. n.a.2022 -959 n.a. n.a. n.a.2023 -1,000 n.a. n.a. n.a.2024 -1,027 n.a. n.a. n.a.2025 -1,165 n.a. n.a. n.a.2026 -1,297 n.a. n.a. n.a.2027 -1,408 n.a. n.a. n.a.

0

200400600800

1,0001,2001,4001,6001,8002,000

2018 2019 2020 2021 2022 2023 20

Financing Gap (Bil. $)

Low Median High 

In the current environment, the Treasury financing gap can be thought of as having three components: 1) amount attributable to baseline budget deficit, 2) amount attributable to from baseline budget deficit (i.e., expansionary fiscal policy), and 3) amount attributable redemptions.
Source: Author’s calculations based on data published by the NY Fed

Maturing Fed Holdings of Treasury Coupons (after December 2017

324 

413 

295 

207 

233 

0

50

100150200250300350400450

2018 2019 2020 2021 2022 

(Bil.$)

Fiscal Years

In the financing scenarios that follow, we assume the Fed ceases all rollovers at the beg2018 and this continues until the middle of FY 2020 (when they are assumed to have ach“normal” balance sheet). If Fed runoffs are extended beyond that point, the financing gabe correspondingly larger. 
Consider Two Alternative Treasury Financing Scenarios1) Concentrate extra issuance in the front end (equal proportion o2’s and 3’s).2) Spread extra issuance across all maturities in proportion to currissue sizes holding bill share constant at yearend 2017 value.
Source: Author’s calculations

Scenario 1: Front End Used to Fill Financing Gap

01234567

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Annual 2 Yr Note Issuance, % of GDP

ActualHighMedianLowCBO
Source: Author’s calculations

Scenario 1: Front End Used to Fill Financing Gap

0123456

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Annual 3 Yr Note Issuance, % of GDP

ActualHighMedianLowCBO
Source: Author’s calculations

Scenario 1: Front End Used to Fill Financing Gap

05

10152025303540

01 03 05 07 09 11 13 15 17 19 21 23 25 27

Bill Share of Debt Outstanding
Source: Author’s calculations

Scenario 2: Financing Gap is Spread Across Curve

0.00.51.01.52.02.53.03.54.0

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Annual 2 Yr Note Issuance, % of GDP
Source: Author’s calculations

Scenario 2: Financing Gap is Spread Across Curve

0.00.51.01.52.02.53.03.54.0

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Annual 5 Yr Note Issuance, % of GDP

ActualHighMedianLowCBO
Source: Author’s calculations

Scenario 2: Financing Gap is Spread Across Curve

0.00.51.01.52.02.5

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Annual 10 Yr Note Issuance, % of GDP

ActualHighMedianLowCBO
Source: Author’s calculations

Weighted Average Maturity of Marketable Treasury Securities Outs

3.54.04.55.05.56.06.57.0

2000 2004 2008 2012 2016 2020 2024

Years

SceSceSceSceSceSceSceSce

Not surprisingly, WAM declines in the scenarios in which the extras issuance is concentrthe front end while it rises in the scenarios in which the extra issuance is spread across t
Takeaways From the Alternative Treasury Financing Scenarios• The financing gap faced by Treasury in coming years is likely to 

too large to address with a heavy concentration of front end issuance. Such a policy would also imply an undesirable declinWAM.

• Spreading the extra issuance across the curve would result in 

coupon sizes, in relation to GDP, that are reasonably close to tpeak levels seen during the financial crisis for most maturities. notable exception is the two year sector – where issuance wouremain below past peaks even with the most pessimistic budgedeficit assumptions. 

• Spreading the extra issuance across the curve would maintain 

gradual increase in WAM. 
Source: Federal Reserve

Lumpiness in Maturity Profile of SOMA Holdings Could Create Debt Manageme

0

10203040506070

Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 No

Treasury SOMA Redemptions TIPS SOMA Redemptions

Bil. $

Maturity of SOMA Holdings of Treasuries
Source: US Treasury Primary Dealer Survey

Can Market Impact Be Gauged Using the Primary Dealer Auction Siz

02468

101214161820

2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 30 Yr 10 Yr TIPS

Change in Auction Stop Out Rate (bp) at end of 1 year given $4bn 

monthly change in auction size

Monthly Issuance in 2020 (Bil. $)

2 Yr 3 Yr

0

10203040506070

Scenario 1

2 Yr 5 Yr 

0

10203040506070

Scenario 2 
*Constructed with Ihrig et al. (2012) model and updated LSAP3 assumptions: https://www.federalreserve.gov/pubs/feds/2012/201257/201257abs.html

Source: Bonis, Ihrig and Wei,“The Effect of the Federal Reserve’s Securities Holdings on Longer-term Interest Rates”, April 20, 2017

Can Market Impact Be Gauged Using Fed QE Studies?

-160-140-120-100

-80-60-40-20

0

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Basis Points

90% Confidence 10-Year Term Pre

LSAP 

Policies

Estimated Decline in 10-Year Treasury Yield at onset 

of the program (basis points) Other Studies

LSAP 1 34 91 - (Event Studies); 36 to 82 (Regressions) - Gagn

100 - Krishnamurthy and Vissing-Jørgensen (2011)20 to 30 - (Treasury security purchases only) - D'Am35 - (Treasury security purchases only) - D'Amico e

LSAP 2 12 25 - Krishnamurthy and Vissing-Jørgensen (2011)

55 – D'Amico et al. (2012)21 – Meaning and Zhu (2011)15 – Swanson (2011)

MEP 28 22 - Hamilton and Wu (2012)

17 – Meaning and Zhu (2012)

LSAP 3 31 60 - Engen, Laubach, and Reifschneider (2015)*
Market Impact of Increased Treasury Supply• The market impact of Fed redemptions combined with the poss

of a higher budget deficit is difficult to gauge with a high degree precision. 

• The dealer survey may not be sufficiently robust to capture the 

impact of such large changes in new issue sizes. 

• Studies by Fed staffers and others regarding the impact of large 

scale asset purchases are probably not applicable to a balance unwind and, at best, provide only an upper bound of the potentimarket impact.

• The likelihood that the Fed will resume secondary market purch

of Treasuries once they have achieved a “normal” balance shee(sometime in 2020 according to our estimates) could cushion thimpact in the interim. It is also worth noting that these purchasehave to account for both the typical growth in Fed liabilities (curetc) as well as ongoing MBS redemptions. 
Source: Author’s calculations

Appendix: Scenario 1 (Front End)

Annual Issuance

5 Yr 7 Yr 10 Yr 30 Yr 

Low Median High Low Median High Low Median High Low Median High 

2016 (Actual) 412 412 412 340 340 340 256 256 256 160 160 160 

2017 408 408 408 336 336 336 252 252 252 156 156 156 

2018 408 408 408 336 336 336 252 252 252 156 156 156 

2019 408 408 408 336 336 336 252 252 252 156 156 156 

2020 408 408 408 336 336 336 252 252 252 156 156 156 

2021 408 408 408 336 336 336 252 252 252 156 156 156 

2022 408 408 408 336 336 336 252 252 252 156 156 156 

2023 408 408 408 336 336 336 252 252 252 156 156 156 

2024 408 408 408 336 336 336 252 252 252 156 156 156 

2025 408 408 408 336 336 336 252 252 252 156 156 156 

2026 408 408 408 336 336 336 252 252 252 156 156 156 

2027 408 408 408 336 336 336 252 252 252 156 156 156 

Scenario 1: Fill Financing Gap with Equal Share of Bills, 2's and 3's

Annual Issua

WAM Bill Share 2 Yr 

Low Median High Low Median High Low Median High Low 

2016 (Actual) 5.2 5.2 5.2 14.7 14.7 14.7 312 312 312 288 

2017 5.2 5.2 5.1 16.3 17.3 19.6 312 312 312 288 

2018 5.2 5.1 5.0 16.0 17.2 19.6 438 499 587 414 

2019 5.2 5.0 4.8 16.3 17.5 20.0 536 589 706 512 

2020 5.1 4.9 4.7 17.0 18.4 21.1 574 647 794 550 

2021 5.1 4.9 4.6 18.1 19.7 22.8 658 748 934 634 

2022 5.0 4.8 4.4 19.5 21.3 24.6 750 844 1050 726 2023 4.9 4.7 4.3 21.1 23.1 26.7 830 936 1165 806 2024 4.9 4.6 4.2 22.9 25.0 28.8 911 1024 1273 887 2025 4.8 4.5 4.1 25.0 27.2 31.1 1036 1154 1418 1012026 4.7 4.4 4.0 27.0 29.3 33.3 1125 1249 1528 1102027 4.6 4.3 3.9 28.9 31.3 35.4 1199 1327 1617 117
Source: Author’s calculations

Appendix: Scenario 2 (Spread Across Curve)

Annual Issuance 

7 Yr 10 Yr 30 Yr 

Low Median High Low Median High Low Median High Low 

2016 (Actual) 340 340 340 256 256 256 160 160 160 139 

2017 336 336 336 252 252 252 156 156 156 132018 375 401 434 281 300 325 174 186 201 146 2019 422 446 488 317 334 366 196 207 227 165 2020 431 460 509 324 345 381 200 213 236 168 2021 451 483 539 338 362 404 209 224 250 176 2022 480 512 570 360 384 427 223 238 265 187 2023 514 553 621 386 415 466 239 257 288 200 2024 544 584 655 408 438 491 253 271 304 212 2025 596 642 722 447 482 541 277 298 335 232 2026 634 682 766 476 511 575 295 317 356 247 2027 656 705 810 492 529 607 304 327 376 256 

Scenario 2: Fill Financing Gap with Proportional Increases in All Coupon Sizes (Hold Bill Share Constant)

Annual Issuance

WAM Bill Share 2 Yr 3 Yr 

Low Median High Low Median High Low Median High Low Median High 

2016 (Actual) 5.2 5.2 5.2 14.7 14.7 14.7 312 312 312 288 288 288 

2017 5.2 5.2 5.1 16.3 17.3 19.6 312 312 312 288 288 288 

2018 5.3 5.2 5.1 16.3 17.3 19.6 348 372 403 322 343 372 

2019 5.3 5.3 5.1 16.3 17.3 19.6 392 414 454 362 382 419 

2020 5.4 5.4 5.2 16.3 17.3 19.6 401 427 472 370 394 436 

2021 5.5 5.4 5.3 16.3 17.3 19.6 419 448 500 387 414 462 

2022 5.6 5.5 5.3 16.3 17.3 19.6 446 476 529 412 439 488 

2023 5.7 5.6 5.4 16.3 17.3 19.6 477 514 577 441 474 532 

2024 5.8 5.7 5.5 16.3 17.3 19.6 506 542 608 467 500 561 

2025 5.9 5.8 5.6 16.3 17.3 19.6 553 596 670 511 550 619 

2026 6.0 5.9 5.7 16.3 17.3 19.6 589 633 712 544 584 657 

2027 6.0 5.9 5.7 16.3 17.3 19.6 609 655 752 562 604 694 
Estimated Demand for Potential 

Ultra-Long Treasury Issuance

1
TBAC Charge

Treasury would like the Committee to comment on the demand for ultra-long debt 

(e.g. 50-year and/or 100-year maturities)? 

What factors would Treasury need to consider when structuring ultra-long issuance 

(e.g. settlement date, issuance frequency, issuance sizes), who would be the end user 

of such issuance, and what is the anticipated level of demand from this constituency 

both at present and over the coming years? 

If Treasury were to issue an ultra-long security to meet this projected market demand, 

at what price relative to its current 30-year bond offering could Treasury reasonably 

expect the ultra-long to price?

2
Outline

• Experience with Ultra-Long Instruments

• Potential Demand for Ultra-Long debt:

• Foreign Buyers

• Corporate Defined Benefit Pension Plans

• Life Insurance and Annuity Companies

• Estimated Pricing

• International Comparisons

• Theoretical models

• Implications for US Debt Structure 

• Issuance Mechanics

• Recommendations

3
Experience with Ultra-Long 

Instruments

4
• Ultra-long issuance represents a small portion of overall issuance for sovereigns

• Issuance is sporadic and generally responds to investor appetite at relatively short notice, i.e. irregular and unpredictable

• The UK is a unique case, where pension regulation creates its own demand

Historical Sovereign Issuance by Maturity1

Breakdown of Outstanding Sovereign Debt by Country 

Ultra-long Sovereign Issuance Is Relatively Small But Has Been Growing

Source: Dealogic 1 Dataset comprised of European sovereigns including UK and Japan

5

 -

 100

 200

 300

 400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Amount Issued 

(US$bn equivalent)

12yr-25yr 25yr-35yr 35yr+

0

1

2

3

0

5

10

15

20

US Japan UK (RHS) Italy (RHS) France (RHS) Germany (RHS) Spain (RHS) Belgium (RHS) Austria (RHS)

Outstanding Amount

(US$tn)

Oustanding Amount 

(US$tn)

<12yr 12yr-25yr 25yr-35yr 35yr+
• Ultra-long issuance represents an even smaller portion of overall issuance in the corporate (ex-financial) space

• Issuance is sporadic and opportunistic. Corporate issuers do not follow specific long-dated issuance plans: their issuance is 

rather driven by investor demand and opportunistic considerations

Historical Corporate Issuance by Maturity1

Breakdown of Outstanding Corporate Debt by Country

Ultra-long Corporate Issuance Is Limited

Source: Bloomberg

1 Dataset comprised of non-government issuance

6

0

100

200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Amount Issued

(US$bn equivalent)

12yr-25yr 25yr-35yr 35yr+

0

0.5

1

1.5

0

5

10

US Japan (RHS) UK (RHS) Italy (RHS) France (RHS) Germany (RHS) Spain (RHS) Belgium (RHS) Austria (RHS)

Outstanding Amount 

(US$bn)

Oustanding Amount

(US$tn)

<12yr 12yr-25yr 25yr-35yr 35yr+
• There has been modest demand for synthetic long duration via derivatives – only $30bn notional net long asset managers’ position in the 

Ultra futures contract

• Pension plans are limited users of derivatives (futures and swaps)

• Trading in swaps longer than 30yrs is quite limited as compared to shorter maturities; 4% the volume of 30yrs and 1% the volume in 10yrs

Long Duration Derivative Usage Has Been Limited

Source: Bloomberg SDR

7

Maturity Year Spot Swaps Fwd Swaps Total

2026 10y 2,551.0 761.9 3,313.0

2031 15y 164.9 75.9 240.8

2036 20y 179.6 105.1 284.7

2041 25y 68.7 31.4 100.1

2046 30y 616.4 160.3 776.7

2051 35y 6.2 16.5 22.7

2056 40y 4.4 4.0 8.3

2066 50y 0.9 1.2 2.2

USD Swap Notional Traded in 2016*

*Note: Only reflects trades reported to the SDR (trades where at least one of the 

counterparties is a US person). Notional reported is subject to a cap. Excludes 

unwinds, amendments and aged swaps. Spot starting swaps defined as swaps 

where the effective date is within 7 calendar days of trade date.

Source: CFTC

CFTC CBT Ultra-Long Term US Treasury Net Total Futures

 -

 100

 200

 300

 400

 500

 600

 700

 800

 900

2010 2011 2012 2013 2014 2015 2016 2017

Number of Contracts (000s)

Total

Asset Manager Institutional
Source: PPF Purple Book (prior to 2008 sector breakdown was not provided)

• UK DB pension plans are required to increase benefits in 

line with inflation. This creates a much longer duration 

in projected liabilities and creates demand for inflation 

hedging instruments

• There is less focus on the accounting valuation basis 

(high quality corporates) because pension governance is 

not controlled by the corporate sponsor

• The Technical Provisions basis (Gilts/swap curve + fixed 

spread) is the most important liability valuation basis – this creates greater utilization of sovereign instruments 

for liability hedging

• Much of the UK’s ultra issuance is in Linkers (TIPs) rather than nominals

Differences Between UK and US Corporate Defined Benefit Pension Plans

UK Corporate DB Pension Plan Fixed Income Holdings UK Current market composition

8

UK Is the Largest Issuer of Ultras, Driven by Pension Regulation

UK US

Typical liability 

duration 201 12

Inflation indexation Mandatory inflation indexation 

of benefits

No inflation increases 

required

Liability valuation 

basis used for 

investment strategy 

Technical Provisions - Gilt / 

Swap curve plus fixed spread

US GAAP - High Quality 

Corporate Yield

Pension insurance 

program premiums

Higher premium for higher 

levels of asset liability 

mismatch

Based on # participants and 

level of underfunding, cap on 

total premium payable

Funding rules

The Pensions Regulator 

requires all pension plans to 

implement a deficit recovery 

plan with plan sponsor

Funding relief is currently in 

place, allowing plan sponsors 

to delay making deficit repair 

contributions

Source: Bloomberg as at 3/31/2016.

1 PPF Purple Book

218 248 

90 111 

93 

158 172 199 203 202 233 232 94 

124 140 166 205 206 

260 306 

91 84 

92 76 79 93 93 

126 

151 

 -

 200

 400

 600

 800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GBP BN

Bonds

Corp Bonds

Index Linked Gilts

Nominal Gilts

Nominals 1.9 T Linkers 0.5 T

74%

26%

Front & Long End (<=30y maturity)

Ultra-long End (>30y maturity)

88%

12%

Front & Long End (<=30y maturity)

Ultra-long End (>30y maturity)
Potential Demand for 

Ultra-Long Debt

9
• Foreign investor demand is concentrated in the intermediate part of the curve

• Long-end Treasuries (25-30y) represent only ~4.1% of foreign Treasury holdings (~$225bn)

• Foreign holdings still represent ~35% of Treasuries outstanding in the sector

• The allotment to foreign & international investors at the 30y bond auction averaged 11.8% since 2010 (vs. 

18.2% for 5y notes and 21.8% for 10y notes)

Foreign Holdings of Treasuries Foreign Allotment at Treasury Auctions

Foreign Demand for Ultra-Long Likely to be Relatively Small

Source: US Treasury (Foreign Portfolio Holdings of US Securities and Monthly 

Statement of the Public Debt), NY Fed (SOMA Holdings), as of 30-June-2015

10

Source: TreasuryDirect

0%

10%

20%

30%

40%

50%

60%

70%

80%

 -

 200

 400

 600

 800

 1,000

 1,200

 1,400

 1,600

<1y

1-2y2-3y3-4y4-5y5-6y6-7y7-8y8-9y

9-10y

10-15y15-20y20-25y25-30y

USD BN

Official Private % of Outstanding ex-SOMA

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015 2016 2017

5y Note

10y Note

30y Bond
• US Corporate DB pension liabilities are estimated at $3.6tr

• They are ~81% funded (assets of $2.95tr1), and 44% allocated to fixed 

income2

• If pension plans were to fully fund and fully match, they would 

require an additional $2.3tr in mostly long duration fixed income

• Pension plans have been increasing fixed income allocations by, on 

average, ~1% per annum between 2007 and 2016. A 1% increase in 

fixed income allocation creates ~$30bn additional annual demand

• Over the long run, the DB pension plans are shrinking, reducing the 

forward potential demand for long Treasuries

Type of Pension Plan Offered to New Employee

Fortune 500 Companies US Corporate DB Pension Plan Fixed Income Holdings

Potential US Corporate Defined Benefit Pension Plan Demand is Uncertain

Source: Willis Towers Watson Retirement in Transition

1Investment Company Institute ‘The US Retirement Market’ data as at 13/31/2016

11

Largest 100 US 

Corporate 

Defined Benefit 

Plans2

Extrapolating to 

US Corporate DB 

Universe

Value of Assets $1.40tr $2.95tr1

Value of Liabilities $1.72tr $3.63tr

Funded Status 81.2% 81.2%

% Allocation to 

Fixed Income

44% $1.3tr

Source: Milliman 2017 Corporate Pension Funding Study (12/31/2016) 2Milliman 2017 Corporate Pension Funding Study

0

100

200

300

400

500

1998 2000 2002 2004 2006 2008 2010 2012

Number of Companies

Traditional DB Plans

Hybrid DB plans

DC Plans

30%

32%

34%

36%

38%

40%

42%

44%

46%

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$BN

Fixed Income Holdings (LHS)

Fixed Income Allocation (RHS)

Difference 

of $2.3tr
Long Duration Strategies MV $ % MV Duration

Long Government Credit 248bn 38% 15

Long Corporate / Credit 215bn 33% 13

Extended Duration (STRIPS) 121bn 19% 27

Long Duration Treasury 34bn 5% 17

Long Duration Custom 31bn 5% 10-16

Total 649bn 100%

Cash flow Defeasance of Typical US Corporate DB Plan1

Maturity

% 

MV

Duration

Contribution

% Par Bond

Defeasance

0-2 year 9.9% 0.1 5.0%

2-7 year 24.3% 1.0 11.1%

7-15 year 31.7% 3.3 23.5%

15-25 year 22.5% 4.2 28.9%

25-35 year 8.7% 2.5 19.4%

35-45 year 2.4% 0.9 8.7%

45+ years 0.6% 0.3 3.5%

Total 100% 12.2 100%

~12% 

beyond 

35 years

Potential US Corporate Defined Benefit Pension Plan Demand is Uncertain II

• The typical US corporate DB pension plan has liability 

duration of ~12 years, but only ~10-15% of projected 

benefits beyond 35 years

• US plans are currently ~81% funded with 44% allocated to all 

fixed income assets

• For many US plans, this creates a need to maximize duration 

within fixed income holdings, rather than liability cash flow 

defeasance

• Since PPA 2006 and FASB 158 (2006), pension plans have 

been steadily increasing the duration of their fixed income

• We observe significant allocations to Long Government 

Credit and Long Corporate strategies with modest 

allocations to dedicated Long Treasury and Long STRIPS 

strategies

Factors which could influence fixed income allocations of 

corporate pension plans

• Improvement in funded status driven by market moves 

(higher yields, higher equities)

• Convergence of US GAAP pension accounting towards IFRS 

pension accounting would encourage higher fixed income 

allocations

• The PBGC continues to increase the variable rate premium 

on unfunded amounts up to 4.2% in 2019. This creates an 

incentive to make additional contributions

• Anticipated corporate tax reform could cause an 

acceleration in pension contributions to maximize the value 

of the tax deduction

12

~29% 

around 

20 years

Source: eVestment as at 12/31/2016 1 Normalized average of pension cash flows with durations between 6–18 

years, mean = 12 years, standard deviation = 2 years

Source: Committee participant
• Barclays Bloomberg Long Government Credit is the most prevalent long duration benchmark among corporate DB plans

• All Treasuries issued with a maturity greater than 10 years experience ongoing demand as a result of being included in this 

benchmark. Currently the index is ~40% Treasuries

• Long Government Credit managers often overweight shorter maturity credit sectors and extend duration with derivatives

• The Treasury allocation is typically split between 30 year par bonds for liquidity and 30 year STRIPS to maximize duration

• Long duration issuance could reduce manager reliance on extending duration with interest rate derivatives

AUM Growth in Long Duration Fixed Income Strategies

Potential US Corporate Defined Benefit Pension Plan Demand is Uncertain III

Source: eVestment

13

0

100

200

300

400

500

600

700

800

Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015

USD BN

Long Corporate / Credit

Long Government Credit

Long Duration Custom

Long Treasury

Extended Duration (STRIPS)
0%

5%

10%

15%

20%

25%

30%

0 5 10 15 20 25 30 35 40

% of Issuance

Maturity

IG Corporates

Treasuries

Source: Bloomberg

Asset Class Book Carry 

Value (Millions) %

Public Fixed Income 2,743,933 72%

 Corporate Bonds 1,680,974 44%

 Munis 176,753 5%

 Agency RMBS 183,925 5%

 ABS & Other Structured 215,876 6%

 US Government 151,576 4%

 Private-Label CMBS 125,822 3%

 Private-Lavel RMBS 87,011 2%

 Foreign Government 77,318 2%

 Agency CMBS 25,256 1%

 Hybrids 19,423 1%

Other Asset Classes 1,045,530 28%

Total Assets (Book Carrying Value) 3,789,463 100%

NAIC Life Industry Asset Holdings (YE 2015)

Source: NAIC

• Life and Annuity companies hold the majority of their fixed income portfolios in corporate credit and other spread sectors in

order to exceed their liability cost of funds. US Government holdings are only ~4% of holdings based on NAIC data. 

• This focus on net investment spread and the ability to add duration through strips and interest rate derivatives (which utilize less 

investable cash) would limit the demand of insurers for 40 and 50y coupon Treasury bonds 

• Given their preference for cash flow matching and spread product, insurers would have more demand for 20yr investment grade 

issues. However, 20y corporate issuance is held back by the lack of a 20y benchmark Treasury

IG Corp Issuance Clusters Where Treasuries are Issued 

(% of Issuance 2014 - Q1 2017)

Life and Annuity Insurance Companies Have a Preference for Spread Sectors 

over Treasuries

14
0

20

40

60

80

100

0 5 10 15 20 25 30 35 40

Cash Flow

Duration Neutral Asset Portfolio Cash Flows Example Fixed Annuity Block Flows

 -

 20

 40

 60

 80

 100

0 5 10 15 20 25 30 35 40 45 50

Liability Cash Flows

Duration Neutral Asset Portfolio Cash Flows Example Fixed Annuity Block Flows

Source: Committee participant

Source: Committee participant

20 Year Treasury Issuance Would Facilitate Improved Cash Flow 

Matching by Insurers

• Regulatory testing and accounting 

considerations push life and annuity 

companies to adopt a cash flow matching 

approach where spread product is available. 

• The gap in the 20 year part of the curve 

creates cash flow matching issues for insurers 

• Life and annuity products are driven by 

retirement needs, leading to fixed liability 

flows in the 15 – 25 years sectors.

• 20yr Treasury issuance would provide a 

reference bond for corporate issuers who 

could issue to meet insurance demand.

• We would expect significant demand from life 

and annuity insurers at the 20 year part of the 

curve for investment grade corporate debt 

given their desire to match life contingent 

liability flows. 

15

Difficult to Cash Flow Match Liabilities With Only 10yr/30yr Issuance

9.5 year duration 

liability

20 year issuance would 

allow insurers to reduce 

their 10s/30s barbell

No natural insurance 

demand for ultra-long

20 Year Issuance Improves Cash Flow Match
• Corporate issuers prefer to price off of liquid benchmark issues

• Ultimately enhances Treasury on-the-run liquidity premia

• A mutually beneficial relationship exists between corporate issuance and on-the-run Treasuries – both parties benefit

• Large sophisticated issuers including AT&T, Bank of America, Johnson & Johnson, and Verizon have recently issued in 20 years 

to meet investor demand. This type of issuance could lead to an on-the-run premium for newly issued 20 year Treasuries

Treasury Issuance Benefits from Private Sector Issuance at Same Maturities

1. Richness of on-the-run Treasury versus fourth old.

Source: Committee participant’s models.

Quarterly Corporate Issuance (as % of Treasury Issuance) Compared to Liquidity Premia1

Five Year Ten Year

Seven Year

-25

-15

-5

0% 5

200%

400%

600%

10yr Corp Issuance as % of Qtrly Treas Issuance (LHS) Bps

Avg of 10yr Rich/cheap (bps; RHS)

-5

0

0% 5

10%

20%

30%

40%

Bps 7yr Corp Issuance as % of Qtrly Treas Issuance (LHS)

Avg of 7yr Rich/cheap (bps; RHS)

-25

-15

-5

0% 5

100%

200%

300%

400%

5yr Corp Issuance as % of Qtrly Treas Issuance (LHS) Bps

Avg of 5yr Rich/cheap (bps; RHS)

16
Cash Constrained Investors Likely to Have Demand for Ultra-Long Zeros

• Pension plans are typically cash constrained due to underfunding and need to hedge liability duration without reducing allocations to 

growth assets

• Insurers prefer to maximize allocation to spread products to meet net interest margin objectives

• This leads both pensions and insurers to seek to minimize the amount of cash utilized to achieve the desired duration and curve exposure

• An ultra-long duration, zero coupon Treasury would provide pensions and insurers a security to maximize duration per unit of portfolio 

market value

• Currently, this demand is expressed in appetite for long duration interest rate derivatives and 25yr+ principal STRIPS. Balance sheet 

constraints impede dealers in pricing STRIPS, as they must warehouse the resulting coupon STRIPS. A 50 year par bond could be inefficient 

for dealers to STRIP

• Taxable investors would need to pay taxes on accruals despite lack of cash flow

• Other considerations regarding fungibility and ability to reopen outstanding issues would need to be clarified

17

Less efficient

Current 

opportunity Set

Zero Coupon Bonds are Capital Efficient 

for Cash Constrained Investors STRIPS Outstanding and Coupon-Principal Yield Spread 

Source: Committee participant

Source: Citi STRIPS Index data as at 3/31/2017

0

20

40

60

80

100

10 30 50 70 90

Duration

Maturity

Coupon Bond

STRIPs

Ultra Long

OID Zero

-5

0

5

10

15

20

25

30

 (10)

 -

 10

 20

 30

 40

 50

 60

2017 2022 2027 2032 2037 2042 2047

bps

US Notional BN

Maturity

Coupon Notional (LHS) Principal Notional (LHS)

Coup - P Spread (RHS)
Estimated Pricing

18
• Several European sovereigns have recently brought 50y issues to market, and those securities trade significantly cheap to 30y debt

• France, Spain and Italy all have much smaller pension markets than the US and UK 

• France 50s traded below or around flat before 2011, but subsequently have traded wider

• ECB bond buying has been limited to maturities less than 30 years, likely contributing to recent widening in the 30-50 spread

• The longer duration liabilities and unique regulation of UK pension plans create strong demand for long duration sovereign issuance

• UK DB pensions are much larger relative to the outstanding GBP issuance than the US DB pensions are to USD issuance

• UK 50s have typically traded through 30s

Pricing in Ultra-Long Issuance Reflects Differences in Institutional Demand and 

Regulation

Source: Bloomberg

UK1 US1 Italy2 France2 Spain2

Total Corp and Sov Issuance 

Outstanding Maturity > 10 

years ($BN)

1,134 2,501 444 517 224

Pension Plan Assets ($BN) 1,896 2,946 153 146 39

Pension Assets as % of Total 

Issuance > 10 years 167% 118% 34% 28% 17%

% Fixed Income Allocation 51% 44%

Pension Fixed Income Assets as 

a % of Total Outstanding 

Issuance > 10 years

85% 52%

Sources: Investment Company Institute Retirement Assets 2017, Willis 

Towers Watson 2017 Global Pension Asset Study, Bloomberg, PPF Purple 

Book. UK data as at 3/31/2016, all other data as at 12/31/2016

1 Includes only corporate defined benefit pension plans

2 Includes both defined benefit and defined contribution plans

30-50 Yield Spread of Selected Foreign Sovereigns

-40

-30

-20

-10

0

10

20

30

40

50

60

2005200620072008200920102011201220132014201520162017

bps

France

Spain

Italy

Belgium

UK

19
Longer-term Treasuries Trade Cheap to Interest Rate Swaps

• Treasury spreads to OIS and Libor swaps increase approximately linearly with duration. 

• This suggests that issuance/borrowing costs are a function of the WAM or duration of overall Treasury 

borrowing rather than the mix of maturities issued

Source: Committee participant model 1 Represents the spread of a Treasury bond minus the yield of the fixed leg of a corresponding maturity OIS and LIBOR Swap plotted against the Treasury bond 

duration

20

10y

30y

50y

100y 

-40

-20

0

20

40

60

80

100

120

0 5 10 15 20 25 30

Bps

Duration

Tsy-OIS

Tsy-LIBOR Swap

Treasury Spreads versus Duration1
US Treasury UK

Coupon Bond Zero Coupon Bond

Maturity Fitted 

Yield

Market Yield 

Deviation1 Dur Conv Fitted 

Yield

Market Yield 

Deviation1 Dur Conv Maturity Fitted 

Yield

Market Yield 

Deviation1 Dur Conv

10 2.30% -6 9.0 0.9 2.34% -7 10.1 1.1 10 1.10% -6 9.6 1.0

20 2.75% -9 15.7 3.0 2.85% -18 20.6 4.3 20 1.53% 14 17.7 3.5

30 2.91% -3 20.5 5.4 3.05% -7 31.3 9.7 30 1.65% -1 24.3 6.9

40 2.97% 23.9 7.9 3.12% 41.9 17.3 40 1.67% -14 29.7 10.8

50 2.98% 26.4 10.2 3.12% 52.1 26.8 50 1.66% -15 34.3 15.1

100 2.94% 32.1 18.3 2.88% 92.9 91.2 100 1.47% 50.6 37.8

US Swap France

Coupon Bond Zero Coupon Bond

Maturity Fitted 

Yield

Market Yield 

Deviation1 Dur Conv Fitted 

Yield Dur Conv Maturity Fitted 

Yield

Market Yield 

Deviation1 Dur Conv

10 2.19% 1 9.0 0.9 2.22% 10.0 1.0 10 0.90% 5 9.8 1.0

20 2.44% 1 16.0 3.0 2.49% 20.2 4.1 20 1.68% -5 17.8 3.5

30 2.48% 0 21.3 5.7 2.53% 30.3 9.2 30 1.95% 1 23.9 6.8

40 2.46% 0 25.5 8.6 2.48% 39.8 16.1 40 2.05% 5 28.6 10.3

50 2.41% 3 28.8 11.6 2.39% 48.6 24.3 50 2.08% 0 32.3 13.9

100 2.15% 39.4 25.3 1.89% 80.7 73.3 100 2.04% 42.6 29.3

Theoretical Pricing: Term Structure Model Identifies Fair Value for Ultra-Longs

• A fitted model of the US term structure values a 50 year coupon bond at a 7 bps higher yield than the 30 year and values a 100 

year coupon bond at a 3 bps higher yield than the 30 year

• Longer yields are pulled down by the value of convexity. This convexity effect is assumed to lower the expected funding 

cost to the Treasury, although this reduced cost would only be fully realized under par accounting with no buybacks

• The fitted curve is a hypothetical exercise, and in practice other factors (such as degree of specific institutional demand) are 

likely to affect the yields on these bonds relative to the fitted yield.

• We would initially expect Treasury to initially issue at a higher yield than the fitted value.

Source: Committee participant model as of April 13, 2017 1 On the runs for US, Principal STRIPS for zeros, closest bond maturity for all other countries

Model used for fitted Treasury yield is a proprietary stochastic term structure model which fits fair value for bonds and bond volatility 21
Implications for US Debt Structure

22
Modeling the Effects on US Debt Structure 

• We use a small macroeconomic model to assess the costs and benefits of long-term debt issuance

- Continuation of preliminary model work highlighted at previous TBAC meeting

- Model is intended to capture the uncertainty in both financing needs and borrowing rates across 

the yield curve 

- Results are dependent on the assumed structure of the model

• Model results do not point to meaningful benefits of long-term debt issuance

- The reduction in the variation in debt funding costs from extending to very long maturities is limited

- If the term premium increases with duration, moving to very long maturities would raise the expected 

funding cost to the Treasury

• There could be other reasons for issuing longer maturity points that are not captured by the model

- Expansion of overall borrowing capacity if limitations exist on expanding current coupon sizes (not 

incorporated into the model)

- Other sources of longer-term uncertainty

- Desire to match long-term assets (however, funding is fungible and in most cases should be optimized 

for uncertainty about borrowing needs and interest rates, as captured by the model)

23
Issuing Ultra-Long Debt Might Not Reduce Funding Cost Uncertainty

24

• Using the model, we consider the 

effects of concentrating issuance in 

single maturity points to assess the 

trade-offs involved

• Extending issuance from bills to 

intermediate maturities produces a 

meaningful reduction in the 

variability of funding costs

• However, extending further to very 

long maturities does not reduce 

funding cost variability over a 20 

year window

• Moreover, the expected funding 

cost rises notably as issuance is 

extended to long maturities

• Results highlight that WAM is not 

an adequate measure of funding 

cost risk

*Based on simulations in which Treasury issues debt only at the single maturity 

point indicated (with no limits imposed). Results are based on the debt service 

cost realized in 20 years.

2.5

2.75

3

3.25

3.5

3.75

4

0.5 1.0 1.5 2.0 2.5

Average debt service / GDP (%)

Standard deviation debt service / GDP (%)

Simulated Tradeoff between Borrowing Cost and 

Variability in Borrowing Cost*

30 50

20

10

7

5

3 2 Bills
Issuance Mechanics

25
Treasury’s Regular and Predictable Issuance Pattern Delivers Lowest Cost 

Over Time

Source: https://www.treasury.gov/about/organizational-structure/offices/Pages/-Debt-Management.aspx

26
Annual Issuance* (right axis)

 -

 250

 500

 750

 1,000

 1,250

 1,500

 1,750

 2,000

 2,250

 2,500

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

$bn

TIPS

30y

20y

15y

10y

7y

5y

4y

3y

2y

FRN

Iss. Amt

Treasury Issuance Pattern Changes Have Historically Been Limited

• Since 1980, the Treasury has made minimal changes to its issuance patterns:

• Introduced 2 new products (TIPS and FRNs)

• Permanently canceled 2 products (4y and 20y)

• Canceled and subsequently re-introduced 3 products (3y, 7y and 30y)

• The Treasury commands an issuance premium due to its regular and predictable issuance pattern

• Regular and predictable means issuance happens in all interest rate environments

Source: Auction data from TreasuryDirect

* Gross issuance excluding bills

27

4y Discon’d 7y Discon’d 3y Discon’d 30y Discon’d

TIPS Intro 3y Re-Intro 30y Re-Intro 7y Re-Intro FRNs Intro

20y Discon’d
Market Participants’ Do Not Expect Meaningful Ultra-Long Supply

Previous market survey in regards to ultra-long issuance highlighted that participants1

• Expect a low probability that an ultra-long bond is issued (average near 10%, highest 25%)

• Expect any ultra-long issue to come in the next 18 months

• Expect any ultra-long bond would be issued in sizes ranging from $5 – $20 USD billon/quarter

• See no need for reduction in supply elsewhere on the curve

Recent Research from dealers is mixed to negative2

• Very few expect ultra-long issuance

• All questioned whether demand would be significant enough or sustainable to meet Treasury’s regular and 

predictable issuance pattern

• Most expected any ultra-long issuance to trade cheap to theoretical value

• Some suggested 20y would be a more viable alternative

1 Committee participant survey

2 Harris, Alexandra. ”RESEARCH ROUNDUP: Dealers Wary on Ultra-Long UST Issuance” Bloomberg 25 April 2017

28
Country

2017

Issuance1

Non 

Benchmark 

Issuance

Syndicated 

Issuance2

Auction 

Announcements

Foreign Currency 

debt/ Use 

derivative hedges?

Long End 

Auctions Ultra Long Issuance3

Japan 1,361  None Quarterly  /  15, 20, 30, 40yr Regular 40yr auctions established 

in 2007

France 206  7% Annually, specifics

one week prior  /  Reopenings Only

50yr: €6bn in 2005, €5bn in 2010, 

€3bn in 2016

A new 50yr transaction every few years

with taps via auction afterwards

Germany 172  ~1% Annually  /  30yr None

Italy ~150  18% Annually, specifics

one week prior  /  Reopenings Only €5bn 50yr in 2016 tapped in 2017

Private placements since 2006

UK 148  15% Annually, specifics 

quarterly  /  20, 30yr, 

Reopenings Programmatic since 2009

Spain 132  22% Annually, specifics

one week prior  /  Reopenings Only €1bn 50yr in 2014, €3bn 50yr in 2016

Reopened bonds via auction

Belgium 42  41% Annually, specifics

one week prior  /  Reopenings Only €3bn 50yr in 2016, €3bn 40yr in 2017

Private placements since 2010

Austria 21.5  48% Annually, specifics

one week prior  /  Reopenings Only €2bn 50yr in 2012 (tapped 3 times)

€2bn 70yr in 2016

Borrowers with Large Funding Programs Are Generally Less Opportunistic in 

their Approach to the Market

1 Billion USD equivalents

2 As a percentage of overall issuance

3 40 year maturity or longer 29
Syndication Auction

• Pricing managed by issuer and syndicate banks 

to meet investor demand and subscription level

• Pricing can be adjusted to meet a desired size of 

issuance in the context of the order book

Pricing 

• Pricing uncertainty will be subject to auction process 

and volatility at the moment of issuance

• When issued trading should help provide some 

transparency, but a first issuance of 50yrs could 

experience heightened volatility and a meaningful 

tail

• In the Euro-government market, syndications 

tend to offer issuers a larger liquidity event than 

auctions. 

• This is driven to some extent by the fact that 

syndications will offer a bigger discount to 

investors (as mentioned above) 

Size

• Dealers participating in European government bond 

auctions have an obligation to bid or buy a minimum 

size (similar to US primary dealers. This will give the 

issuer an idea of a minimum total size but on 

occasion European auctions are smaller than 

expected or retained by the issuer 

• Places bonds directly with end users, limiting 

the amount on dealer balance sheets, and 

dealer’s ability to make short offerings

• The syndication process can generate an 

“oversubscribed book” where investors get 

allocated fewer bonds than they wanted. This 

typically generates demand in the secondary 

market

Performance

• Post auction performance can be more variable 

depending on the percentage of direct bids, the 

bid/cover ratio and the positioning of the dealers 

heading out of the auction

Many European Sovereigns Issue Ultras via Syndication, Though this Would 

be a Significant Departure from Current Treasury Practice

30
Recommendations

31
Recommendations

• Treasury’s regular and predictable issuance policy is designed to fund the government at the lowest cost over 

time. This should remain the central consideration when assessing new instruments or additional maturities. 

• We do not currently see evidence of notably strong or sustainable demand for ultra-longs in the US market.

• However, issuing more longer-term debt could be warranted if Treasury wanted to raise its overall borrowing 

capacity.

• Under that objective, we recommend considering points between 10 and 30 year benchmarks, such as a 

return of the 20 year bond, in addition to increased issuance in 10 and 30 years

• A reintroduction of the 20 year will have the broadest demand, highest certainty of initial pricing, and 

quickest market acceptance

• Fills a hole in the curve and offers best certainty of establishing another maturity 

• Expect significant demand from insurers and annuity providers for 20 year corporates which will benefit 

Treasury issuance cost

• Issuing an ultra-long security should be studied further

• Although issuing a zero coupon security requires detailed analysis on tax, accounting and systems 

implications, there may be meaningful demand for 50 year zero coupon bonds. This ultra-long security is 

the most likely to trade near theoretical value

• In the future, a 40 or 50 year par bond may warrant further study and may make sense if demand 

increases or expected pricing relative to theoretical valuation improves

• We would not recommend issuing 100 year par bonds at this time

• There are limited pension or insurance cash flows which stretch far beyond 50 years

• An existing 30 year STRIP already provides a similar duration exposure to a 100 year par bond

• We would expect a 100 year issue to price significantly cheap to fair value 32