Presentation to the U.S. Treasury Presentation to the U.S. Treasury 

and the Treasury Borrowing and the Treasury Borrowing 

Advisory Committee Advisory Committee

May 3, 2005
Question Question

 Please discuss the characteristics of Treasury 

liability portfolio including average maturity of 

debt, steady state issuance and rollover. Do 

these metrics adequately capture the 

Treasury’s policy concerns? Are there other 

metrics that we should be using to develop 

debt management policy?
What Does Treasury Liability What Does Treasury Liability 

Look Like? Look Like?

Source: Treasury Chart Book, Merrill Lynch 

Debt Portfolio

 Average maturity of issuance has 

stabilized at roughly 3 years

 Maturity of total outstanding drops from 

4.6 years to less than 4 years over the 

next 5 years

 Composition of nominal issuance is 

within historical ranges

 Current issuance patterns lead to a 

growing proportion of 5-year notes and 

TIPS in the portfolio

 The percent of debt maturing with 3 

years or less to maturity is projected to 

remain stable at slightly more than 60%

Distribution of Marketable 

Debt Outstanding

0%

5%

10%

15%

20%

25%

30%

35%

1980 1987 1994 2001 2008

0%

5%

10%

15%

20%

25%

30%

35%

Bills 4-7 yrs 10 yrs

Bonds TIPS 2-3 yrs Projected

Debt Maturity Measures

0

20

40

60

80

100

80 84 88 92 96 00 04 08

Months

0

20

40

60

80

100

Average maturity of issuance

Average maturity

Projected

Average Maturity of Debt

0

2

4

6

8

10

12

14

85 87 89 91 93 95 97 99 01 03

Years

0

2

4

6

8

10

12

14

U.S. Canada

France Germany

U.K. Japan

Italy
Steady State Steady State

Source: Treasury Chart Book

 Bills, acting as residual borrowing device, start to increase 

in 2008. Need to decide if more permanent, longer-term 

issuance is warranted

Treasury Annual

Net Market Borrowing

-300

-200

-100

0

100

200

300

400

500

98 00 02 04 06 08

$ Billions

Bills $ billions 2-under 5 years

5-10 years Over 10 years

Buybacks

Projected

Financing Residuals Given

Current Issuance Pattern

-300

-200

-100

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

$ Billions

-300

-200

-100

0

100

200

300

400

500

600

700

Plus average absolute error in OMB estimate

OMB MSR FY2005 Budget--- Net Financing

Minus average absolute error in OMB estimate

Bars indicate estimated change in financing 

required in given year for different deficit 

outcomes 
Rollover Risk Rollover Risk

Source: Treasury Chart Book

 Rollover risk not high by historic standards

 Ill-defined, not comparable to HY / EMG world

Percentage of Debt Maturing in Next 12 to 36 Months

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

Maturing in 12 months Maturing in 24 months Maturing in 36 months
Objective Defined Objective Defined

 Primary goal: Finance the government 

borrowing needs at the lowest cost over time

 Issue debt in a regular and predictable manner, 

provide transparency..., seek continuous 

improvements in the auction process

 Fisher “Treasury does not try to outsmart the 

market at any one moment, or (try) to be a 

“market timer” with respect to any particular 

shape of the yield curve”
Commentary, How Well Do They Commentary, How Well Do They 

Capture Policy Concerns Capture Policy Concerns

 On balance, Treasury portfolio appears to be well 

balanced. Designed to meet the Treasuries objectives and 

provide flexibility for most possible outcomes

 Assymetric risk profile, higher than expected borrowing 

needs will force Treasury action well before lower needs

Source: Goldman Sachs, Lehman Brothers

Federal Government Liabilities

-600

-400

-200

0

200

400

600

800

90 92 94 96 98 00 02 04

$ Billions

2500

3000

3500

4000

4500

5000

5500

$ Billions

Net borrowing (Flow) LHS

Liabilities (Stock) RHS

Budget Balance

-500

-400

-300

-200

-100

0

100

200

300

80 83 86 89 92 95 98 01 04

$ Billions

20yr 4yr 7yr

3yr 1yr

30yr TIPS

4wk

Buybacks 3yr

5yr, 20yr TIPS
Demand and Traditional Auction Demand and Traditional Auction 

Statistics Statistics

Source: Wrightson

 Traditional auction statistics (bid / cover ratio and tail) don’t 

help capture the demand function

 Only very low correlations with auction sizes

 Demand function unfortunately does not lend itself to 

precise calculations

TIPs Auctions

0

1

2

3

4

5

6

0 5 10 15

Gross Issue ($bn)

Cover Rati

o

2yr Notes

0

0.5

1

1.5

2

2.5

3

3.5

0 10 20 30

Gross Issue ($bn)

Cover Rati

o

3yr Notes

0

0.5

1

1.5

2

2.5

3

3.5

0 10 20 30

Gross Issue ($bn)

Cover Rati

o

5yr Notes

0

0.5

1

1.5

2

2.5

3

3.5

0 10 20 30

Gross Issue ($bn)

Cover Rati

o
Demand and Foreign Demand and Foreign 

Participation Participation

Source: Treasury Chart Book, Goldman Sachs

1/ Privately held debt excludes holdings of the Federal Reserve

2/ Series for estimated foreign holdings. See www.treas.gov/tic/index.html for source data

3/ Source: Federal Reserve Bank of New York statistical release H4.1

* Note:April 05 reading is the month to April 15

 Foreign participation in Primary and Secondary markets 

can be unpredictable

 Recommend better data collection, focus on long-term 

changes in their lending preferences

Foreign Holdings as a Percent

of Total Privately Held Public Debt 1/

53%

29%

0%

10%

20%

30%

40%

50%

60%

93 95 97 99 01 03 05

0%

10%

20%

30%

40%

50%

60%

Estimated foreign holdings as % of

private. 2/

Foreign and International Institutional

Holdings at FRBNY as % of private. 3/

Benchmark

Revisions

Central Bank Purchases Drop in April*

-10

0

10

20

30

40

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05

US$ Bn

-10

0

10

20

30

40

Treasuries

Treasuries+Agencies

Montlhy Change in US Security Holdings 

by Official Institutions

TICs

Data

Fed 

Data

Less Treasury Buying in 2005, 

More Agencies

0

50

100

150

200

250

300

Treasuries Agencies Total

Chg in Official Holdings US$ Billion 

2004 Q1 2004 Q1 2005
Demand and the Rest of the Demand and the Rest of the 

Fixed Income Universe Fixed Income Universe

Source: Citigroup, Lehman Brothers, PIMCO

 Demand for Treasuries can be effected by the alternative Fixed 

Income Universe Space

 Example: A secular shift in the mortgage market could increase 

the demand for Treasuries relative to all other assets if demand

for duration stays constant

ARMs as Percentage of Overall MBS Universe

Citigroup BIG Index vs. 

Citigroup BIG ex-Treasury Index

3

3.5

4

4.5

5

5.5

89 91 93 95 97 99 01 03 05

3

3.5

4

4.5

5

5.5

BIG Duration ex-Treasury

BIG Duration

Effective Duration vs. Effective 

Duration ex-Treasury

3.0

3.5

4.0

4.5

5.0

5.5

98 99 00 01 02 03 04

3.0

3.5

4.0

4.5

5.0

5.5

Aggregate Effective Duration

Aggregate Effective Duration ex-Treasury

1994

1%

12%

2%

85%

Fixed Rate 1/1 Arm

3/1 Arm 5/1 Arm

2005

76%

5%

10%

3%

6%

Fixed Rate 1/1 Arm

3/1 Arm 5/1 Arm

7/1 Arm
Demand and Asset Allocation Demand and Asset Allocation

Source: Federal Reserve Flow of Funds Report - Table L.119.b, The Economics of Private 

Pensions

 Shifts is asset allocation can can have a dramatic impact 

on the demand for Treasuries

 Current pension fund dynamics strongly arguing for better 

asset-liability management, perhaps increasing demand 

for long-term securities

Asset Allocation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

46 54 62 70 78 86 94 02

Cash Bonds Equity Other

Asset Allocation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

46 54 62 70 78 86 94 02

Bonds Other
Demand and the Yield Curve Demand and the Yield Curve

Source: Bloomberg Financial Markets, RBS Greenwich 

 Yield curve should give Treasury a sense of the changing 

maturity preferences

 Simple regression of yield curve implies demand for longer 

maturities has increased, but will it persist?

 Liquidity for 30yr futures still far below intermediate 

maturities

Tsy 5-30s Curve Slope Normalised vs. 

2y Level Monthly Data 3/1/77-4/1/05

-1.5

-1.0

-0.5

0.0

0.5

1.0

Jan-77 Sep-90 May-04

Percent

y = -0.18123 * x + 1.827791

Curve too flat

CBOT TY Open Interest vs.

CBOT Total Open Interest

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1986 1990 1994 1998 2002

CBOT TY total open interest

CBOT bond total open interest
Reality Check and the Reality Check and the 

30 Year Bond 30 Year Bond

Source: Lehman Brothers 

 Focus on 30yr Bond issuance disproportionate to potential 

impact

Market Value % Market Value % Duration

LBAG $ 100.0% 100% 8,188,057.00

Treasury $ 25.4% 30.4% 2,078,841.00

Long Treasury $ 6.3% 15.5% 516,270.00

Annual 30 Year Issuance $ 0.4% 1.3% 30,000.00
Presentation to the Treasury Presentation to the Treasury 

Borrowing Advisory Committee Borrowing Advisory Committee

May, 2005
Question: Question:

Please describe any trends in the 

Treasury market that you believe are 

significant to the Treasury as an issuer.
Long Duration Long Duration 

Supply/Demand Imbalance Supply/Demand Imbalance
Pension Fund Reform: Well Understood Basics

Long dated assets as a % of Total Pension Fund Assets

0%

5%

10%

15%

20%

25%

30%

35%

40%

US UK

 At the end of 2004 the median asset allocation of Defined Benefit 

Plans was 60% equities and only 28% bonds.

 The PBGC indicated that pension plans are under funded by $450b, 

a sharp contrast to an over funded position as recently as 2000.

 Pension plans have large duration mismatches between liabilities

which average 12-16 years and assets which average approximately 

five years. Addressing this mismatch will create demand for long 

duration fixed income instruments, the availability of which is low 

relative to other countries such as the UK. 

 Theoretically, the extra demand for dollar duration from the reform 

proposal could be as high as $2 trillion assuming a 5-year duration 

mismatch, and over $6 trillion assuming a 10-year duration 

mismatch. Key point is that pension reform could, to a greater or 

lesser degree, create demand for longer duration assets. 

 Under-funded liabilities in pension funds is likely to create long 

duration demand even in the absence of reform given the implicit

guarantee provided by the PBGC, backed by the treasury

 Supply/Demand imbalance further compounds curve flattening, 

creating a possible curve inversion between 10-year and 30-year 

maturities.

Potential Rise in Duration Demand ($ Trillion)

$-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

5yr 10yr
Demand for long-dated cash 

10s/30s Spread-of-Spreads

 Since the Department of Labor released its proposal for 

pension reform on January 10, 2005, the demand for longdated cash securities outpaced the demand for intermediatedated cash instruments, and outpaced the demand for longer 

duration derivative assets. 

 Undoubtedly, the majority of this buying originated from 

speculative players anticipating a future pension bid.

 Regardless, while swaps can be traded limitlessly, this does 

not suggest they serve as a perfect substitute for cash 

securities.

10s/30s spread-of-spreads (in basis points)

(30)

(25)

(20)

(15)

(10)

(5)

-

5

10

8/10/00

12/10/00

4/10/01

8/10/01

12/10/01

4/10/02

8/10/02

12/10/02

4/10/03

8/10/03

12/10/03

4/10/04

8/10/04

12/10/04

4/10/05
Outstanding Mortgage Durations 

Already Short are Shortening Further.

Real Fed Funds vs. 2s/10s Slope

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1990 1992 1994 1996 1998 2000 2002 2004

-150

-50

50

150

250

350

450

Real Fed Funds

(inverted axis)

2s/30s Slope

Maturity Runoff Model of 

Conforming Balance Mortgage Originations

0.0

5.0

10.0

15.0

20.0

25.0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16-30

Years

Total %

 Adjustable rate mortgages share of new mortgage origination has

surged from 20% to 60% over the past 2 years. High home prices 

and rising interest rates could keep demand for ARM products high 

relative to the total portfolio mix. 

 A maturity runoff model of conforming balance mortgage 

originations shows the asset liability match frontloaded. 

 Net shortening of mortgage assets effectively reduce the total 

supply of longer duration debt. 

 Increased supply at the short end of the curve is yet another 

contributing factor to the flattening trend that has developed in the 

current tightening cycle.
Long-Term Agency Issuance and 

Outstanding Treasury Duration

500

600

700

800

900

1,000

1,100

1,200

2001 2002 2003 2004 2005

(estimated)

Agency Issuance - $ billions

55

57

59

61

63

65

67

69

71

73

Tsy Duration - M onths

Agency Issuance

Tsy Duration

Pool of Longer Dated Instruments 

Diminishing in Treasury and Agency Market

Fannie/Freddie Mortgage Holdings

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1991

199219931994

199519961997

199819992000

20012002

2003

2004

0

200

400

600

800

1000

1200

1400

% of MBS Market

$ MBS (in billions)

 Average maturity of outstanding treasury debt has steadily diminished over the 

last several years. Assuming current issuance patterns of an average 3-year 

maturity are maintained, maturity of outstanding treasury debt could diminish 

to four years by the end of 2010. 

 Over the past several years long term agency issuance filled a need for longer 

dated instruments. Average issuance of long term debt has been 

approximately 4 1/2 years. 

 Trend decline in GSE balance sheets lessens supply of that closely comparable 

debt, creating less low-risk, non-call debt in the world; more callable and 

somewhat messy MBS to absorb along with their estimation risk. 

 If you accept the notion that the market thought of GSE debt as essentially 

“governments”, then one could envision a widening of swap and corporate 

spreads as fewer bond portfolios find MBS as suitable investments (either 

because the bonds are callable or because they are unwilling to accept the 

associated estimation risk) and choose to reach for the lowest-risk debt class. 
Why Not Longer Duration TIPS?

 Despite the expansion of TIPS issuance and the introduction 

last year of both 5-year and 20-year issues, the market 

remains illiquid relative to nominal bonds.

 The lack of liquidity is a result of several factors: Low 

primary dealership participation; a lack of hedging 

instruments that provide accurate protection for risk; thin 

secondary trading in the inter-dealer market and high 

investor concentration.

 The TIPS market needs further maturation before it can be a 

viable alternative for nominal securities. In addition, the 

concentration of ownership among a small group of money 

managers implies any meaningful portfolio adjustment 

could lead to market dislocations. 

TIPS Daily Trading Volume Relative to 

Total Treasury Daily Trading Volume

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2002

2002

2002

2002

2003

2003

2003

2003

2004

2004

2004

2004

2005
The Curve and Financing Costs

 A simplified look at reducing financing costs by reducing 5-

year issuance, and substituting with a mix of short and longterm issues illustrates that since 2001, the treasury would 

have benefited from lower funding costs by including 30-yr 

bonds in the mix of assets issued for funding. 

 The chart uses a duration weighted combination of 2-yr and 

30-yr bonds to replace reduced 5-year issuance ($100mm 5s 

= $20mm Bonds + $80mm 2s).

 Negative numbers show the extra cost, in basis points, 

incurred by issuing 5-year notes instead of a combination of 

2-year notes and 30-year bonds. 

2s/5s/30s Butterfly

-100

-80

-60

-40

-20

0

20

40

1/30/99

7/30/99

1/30/00

7/30/00

1/30/01

7/30/01

1/30/02

7/30/02

1/30/03

7/30/03

1/30/04

7/30/04

1/30/05

yield of wings - yield of body
Rolling Average of 2s/5s/30s Butterfly

 Using a one year rolling average of the 2s/5s/30s butterfly, the

Treasury’s current savings would amount to roughly 37 basis 

points.

 Predicting when a change in issuing patterns is necessary to 

maintain low borrowing costs is a difficult challenge. The decision 

to eliminate the 30-year bond in October 2001, made sense in light 

of budget surplus estimates, as did the elimination of the 4-year, 7-

year and 20-year given the expensive funding levels incurred 

relative to other maturities. 

 The 5-year and 10-year sectors of the curve are expensive funding 

points compared to various mixes that include a 30-year, and 

current supply/demand dynamics argue that demand for long 

duration assets far exceeds the supply and the possible savings for 

a reintroduction of the bond would be sustainable. 

1 Year Rolling Average Savings (bps)

0

10

20

30

40

50

60

70

80

4/22/2004

5/22/2004

6/22/2004

7/22/2004

8/22/2004

9/22/2004

10/22/2004

11/22/2004

12/22/2004

1/22/20052/22/2005

3/22/2005
Foreign Purchases of U.S. Foreign Purchases of U.S. 

Treasuries Treasuries
 Asian central bank purchases represent 75% of total foreign official purchases. 

China is the second largest holder of Treasury securities.

 Revaluation of China’s currency (RMB) would reduce USD weighting in 

portfolio from 80% toward 65%, which would imply a continued deceleration 

in purchases of USD assets, including treasuries. 

 Net purchases from Asian accounts over past twelve months have decelerated 

to approximately $140b, half the sum in the previous 12 month period. 

 Revaluation could have knock–on effects on other Asian portfolios that also 

manage currency to the Yuan peg.

 The treasury market could absorb a deceleration in both purchases from China 

(approximately $50b a year), and Asian buyers more broadly, should there be a 

shift in exchange rate policy, albeit at higher rates.

 Reduced buying would exert upside pressure on rates, which could be 

magnified by a weaker USD, at least over the short term, raising borrowing 

costs for the Treasury.

Chinese Buying: Steady, but Facing Some 

New Questions.

Monthly Change in Foreign Holdings in $ billions 

(6m Moving Average)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2002 2003 2004 2005

China

Japan

UK
 Weak buying from Japan reflects portfolio reallocation into 

Agency securities. Share of Agency market has risen from 

10% to 18% over the past year.

 Foreign purchases have more than kept pace with the 

incremental borrowing needs in the post surplus Treasury 

environment. Net purchases have averaged almost $30b a 

month over the past year.

 Foreign central banks still account for half of those purchases 

despite outright selling from Japan over the last six months. 

Foreign Purchases of US Treasuries

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

% of total Portfolio

Investment

mean since 1995

Source: EcoWin

Japanese Purchases Declining, but Overall 

Foreign Buying Remains Robust.

(400)

(300)

(200)

(100)

-

100

200

300

400

500

2000 2001 2002 2003 2004 2005

Total Federal

Marketable Debt

(12m Change)

Foreign Holdings

(12m Change)
Worth Watching
Growth in Credit Derivatives

Source: British Bankers' Association, US Federal Reserve, and IMF Global 

Financial Stability Report

Corporate Balance Sheets and Credit Swap Growth

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1997 1998 1999 2000 2001 2002 2003 2004

Credit Derivative Notional

($Trillions)

$(200)

$(150)

$(100)

$(50)

$-

$50

$100

$150

$200

finance surplus ($ billions)

credit derivatives notional

corporate finance

surplus

 The trading and notional outstanding volumes of credit derivatives market has 

more than doubled over the past two years. 

 Credit default swaps represent approximately 50% of the outstanding notional, 

collateralized loan Obligations 22%, with asset swaps, credit linked notes, and 

total return swaps make up the remainder.

 At Present, most corporate balance sheets contain sufficient liquidity to 

mitigate against major credit events. The financing surplus, the difference 

between internal funds and investment holdings, are near record highs. 

 Compression of that financing surplus in coming quarters, in context of 

slowing economy and rising interest rates suggest credit quality may slowly 

deteriorate.

 It is difficult to assess whether credit derivative markets, as well as the 

underlying credit market, will continue to operate smoothly in the event of a 

major credit event.

 For some reference names, some market participants perceive that the amount 

of protection bought or sold exceeds the value of the underlying assets. 

Therefore, if a credit event occurs, there may not be enough deliverable assets 

for all the claimants
Should Treasury Conside

Reintroduction of the 30-Ye

Bond?
Starting Point: Low cost borrowing ov

requires issuance diversification 

• Widens investor base• Provides financing flexibility• Lowers operational, event, interest r• Facilitates efficient cash manageme
Questions when considering l

dated issuance

• What is optimal level of diversificatio• Can we simultaneously maintain liqu

bond issuance and a short-dated bia

• Do current as well as future financin

needs and market conditions provide rationale for bond issuance? 
Considerations

• Effects on Portfolio Characteristic• Effects on Issuance Sizes of Exis

Securities

• Effects on Costs• Effects on Refunding Needs
Percentage of Debt Maturing in Next 12 to 36 Month

25%30%35%40%45%50%55%60%65%70%75%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 200

Maturing in 12 Months

Maturing in 24 Months

Maturing in 36 Months

P

Bonds are includedat $10B per semiannualauction

Projections based on OMB's FY06 Budget (except internal Treasury estimate used for FY05) and assumes coup

remain at most recentl

y announced amounts. Residual amounts financed with bills. 
Distribution of Marketable Debt Outstanding by Security 

0%5%

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

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 20

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

Proj

Projections based on OMB's FY06 Budget (except internal Treasury estimate used for FY05) and assumes coup

remain at most recently announced amounts. Residual amounts financed with bills. 
Distribution of Marketable Debt Outstanding by Security 

0%5%

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

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 20

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

Proj

Projections based on OMB's FY06 Budget (except internal Treasury estimate used for FY05) and assumes coup

remain at most recently announced amounts. Residual amounts financed with bills. 

Bonds are included at $10B per semiannual auction
DEBT MATURITY MEASURES** 

2030405060708090

100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2

months

Average Maturity of Issuance

Average Maturity 

Includes 30-yr issuance of $10B per semi-annualauction

P

Projections based on OMB's FY06 Budget (except internal Treasury estimate used for FY05) and assumes coupremain at most recentl

y announced amounts. Residual amounts financed with bills. **Based on end-of-fiscalye
Implications of the Bond for Gross Financin

66

12%12%

WithoutWith Bond

Pessimistic

22

7%6%

WithoutWith Bond

Central 

-2-2

1%0%

WithoutWith Bond

Optimistic

Deficit 2006 2

Forecast

Average change in auction size needed to meet gross marketable bo

Central Forecast based on OMB FY06 Budget (except internal Treasury estimate used for FY05), Optimistic Forecasts based on OMB’s forecast errors from 1984-2004. Distribution of issuance held constant in percenlevel. W/ bond scenario assumes reduced bill issuance to allow for bond issuance.
Interest Cost Comparison 

between Current Issuance versus Bonds Included Issuance

100150200250300350400450

2005 2006 2007 2008 2009 

Total Cost $B

Current IssuanceWith Bonds

Baseline Budget and Rates

Pessimistic Band Rates

Optimistic and Rate

Projections based on OMB's FY06 Budget (except internal Treasury estimate used for FY05) . Assumes auction size as percent remlevel. Bonds are included at $10B per semiannual auction starting in FY05. The baseline rate spread between the 30-year to the 102005-2010 averages to about 35bps. Optimistic and pessimistic budget numbers are derived from OMB's forecast errors. Optimistirates are distributions around OMB's forecasts, derived from 1962-2004 data.