Treasury Presentation to TB
Office of Debt Manageme

Fiscal Year 2013 Q3 Report
Table of Contents

I. Fiscal

A. Quarterly Tax Receipts p. B. Monthly Receipt Levels p. C. Eleven Largest Outlays p. D. Treasury Net Nonmarketable Borrowing p. E. Cumulative Budget Deficits p. F. Deficit and Borrowing Estimates p. G. Budget Surplus/Deficit p. 

II. Financing

A. Sources of Financing p. B. OMB’s Projections of Borrowing from the Public p. C. Interest Rate Assumptions p. D. Net Marketable Borrowing on “Auto Pilot” Versus Deficit Forecasts p. 

III. Portfolio Metrics

A. Weighted Average Maturity of Marketable Debt Outstanding with Projections p. B. Recent and Projected Maturity Profile p. 

IV. Demand

A. Summary Statistics p. B. Bid-to-Cover Ratios p. C. Investor Class Auction Awards p. D. Foreign Awards at Auction p. E. Primary Dealer Awards at Auction p. 
Section I:

Fiscal
-50%

-25%

0%

25%50%75%

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec11

Year over Year % Change

Quarterly Tax Receipts

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

Sept. 2002 year over year % change data point excluded from corporate taxes due to 9-11 impacts on data.
0

20406080

100120

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

Individual Income Taxes Corporation Income Taxes Social Insurance Taxes 

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

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

 100 200 300 400 500 600 700

HHS

SSA

Defense

Treasury

Agriculture

Labor

VA

Transportation

OPM

Education

$ bn

Eleven Largest Outlays

Oct-Jun FY 2012 Oct-Jun FY 2013
(30)

(20)(10)

0

102030

Q4-02

Q1-03

Q2-03

Q3-03

Q4-03

Q1-04

Q2-04

Q3-04

Q4-04

Q1-05

Q2-05

Q3-05

Q4-05

Q1-06

Q2-06

Q3-06

Q4-06

Q1-07

Q2-07

Q3-07

Q4-07

Q1-08

Q2-08

Q3-08

Q4-08

Q1-09

Q2-09

Q3-09

Q4-09

Q1-10

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q212

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

Foreign Series State and Local Govt. Series (SLGS) Savings Bonds
0

200400600800

1,0001,2001,400

October

November

December

January

February

March

April

May

June

July

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2011 FY2012 FY2013
Primary 

Dealers1 CBO2

CBO's Estima

of the

President's Bud

FY 2014 Deficit Estimate 627 560 675 FY 2015 Deficit Estimate 514 378 437 FY 2016 Deficit Estimate 506 432 413 FY 2014 Deficit Range 525-750FY 2015 Deficit Range 400-650FY 2016 Deficit Range 400-600FY 2014 Net Marketable Borrowing Estimate 677 649 754 FY 2015 Net Marketable Borrowing Estimate 566 471 530 FY 2016 Net Marketable Borrowing Estimate 568 510 497 FY 2014 Net Marketable Borrowing Range 482-825FY 2015 Net Marketable Borrowing Range 324-800FY 2016 Net Marketable Borrowing Range 445-750Estimates as of: Jul-13 May-13 May-13 FY 2014-2016 Deficits and Net Marketable Borrowing Estimates 

1Based on primary dealer feedback on July 22, 2013. Estimates above are averages. 2Table 1 and 5 from "Updated Budget Projections: Fiscal Years 2013 to 2023"3Table 1 and 2 of the "An Analysis of the President's 2014 Budget"4Table S-5 and S-11 of the "Fiscal Year 2014 Mid-Session Review Budget of the US Government"
(2,500)(2,000)(1,500)(1,000)

(500)

0

500

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ bn

Fiscal Year

Budget Surplus/Deficit

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

OMB’s Projection

Projections are from Table S-5 and S-6 of the “Fiscal Year 2014 Mid-Session Review Budget of the US Government.” 
Section II:

Financing
Sources of Financing in Fiscal Year 2013 Q3

*Assumes an end-of-June 2013 cash balance of $79 billion versus a beginning-of-April 2013 cash balance of $79 billion. By keepin

balance constant, Treasury arrives at the net implied funding amount. Financing Estimates released by the Treasury can be found via the following url: http://www.treasury.gov/resource-center/dat

center/quarterly-refunding/Pages/Latest.aspx

Net Bill Issuance (221) Issuance Gross Maturing Net Gr

Net Coupon Issuance 210 4-Week 460 515 (55) 1,5

Subtotal: Net Marketable Borrowing (11) 13-Week 404 437 (33) 1,2

26-Week 340 364 (24) 1,0

Ending Cash Balance 135 52-Week 98 102 (4) 2

Beginning Cash Balance 79 CMBs 30 135 (105) 2

Subtotal: Change in Cash Balance 56 Bill Subtotal 1,332 1,553 (221) 4,3

Net Implied Funding for FY 2013 Q3* (66)

Issue Gross Maturing Net Gr

2-Year 105 112 (7) 3

3-Year 96 120 (24) 25-Year 105 62 43 37-Year 87 0 87 2

10-Year 66 18 48 130-Year 42 0 42 1

5-Year TIPS 18 16 2 3

10-Year TIPS 13 0 13 530-Year TIPS 7 0 7 2

Coupon Subtotal 539 329 210 1,6

Total 1,871 1,882 (11) 5,9

Coupon Issuance

April-June 2013 April-June 2013 

Bill Issuance

April-June 2013 
Sources of Financing in Fiscal Year 2013 Q4

Assuming Constant Issuance Sizes as of 6/28/2013

*Keeping issuance sizes and patterns, as of 6/28/2013, constant for all securities.**Assumes an end-of-September 2013 cash balance of $95 billion versus a beginning-of-July 2013 cash balance of $135 billion.

Financing Estimates released by the Treasury can be found via the following url: http://www.treasury.gov/resource-center/dat

center/quarterly-refunding/Pages/Latest.aspx

Assuming Constant Issuance Sizes as of 6/28/2013*: Issuance Gross Maturing Net 

Net Bill Issuance (72) 4-Week 390 395 (5) 

Net Coupon Issuance 299 13-Week 390 404 (14) 

Subtotal: Net Marketable Borrowing 227 26-Week 325 378 (53) 

52-Week 75 75 (0) 

Treasury Announced Estimate: Net Marketable Borrowing** 209 CMBs 0 0 0 

Implied: Decrease In FY 2013 Q4 Net Issuances (18) Bill Subtotal 1,180 1,252 (72) 

Issue Gross Maturing Net 

2-Year 140 108 32 3-Year 96 104 (8) 5-Year 140 73 67 7-Year 116 0 116 

10-Year 66 34 32 30-Year 42 0 42 

5‐Year 5-Year TIPS 16 0 16 10‐Year 10-Year TIPS 28 25 3 30‐Year 30-Year TIPS 0 0 0 

Coupon Subtotal 644 345 299 

Total 1,824 1,597 227 

Coupon Issuance

July-September 2013 July-September 2013 

Bill Issuance

July-September 2013 
932

874

787

736

661 634 677

712

690

71

(400)(200)

0

200400600800

1,000

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

$ bn

Fiscal Year

OMB's Projections of Borrowing from the Public 

Primary Deficit Net Interest Other Data Labels: Annual Change in

Debt Held by Public

Annual Change in Debt Held by the Public

OMB’s projections of borrowing from the public are from Table S-11 of the “Fiscal Year 2014 Mid-Session Review Budget of the UGovernment.” Data labels represent the change in debt held by the public in $ billions. “Other” represents borrowing from the p

provide direct and guaranteed loans, in addition to TARP activity. Data labels represent the annual change in debt held by the pu

$ bn %

Primary Deficit 1,401 17%Net Interest 5,161 64%Other 1,520 19%Total 8,082

FY 2013 - 2023 Cumulative Total
1.5

2

2.5

3

3.5

4

4.5

5

5.5

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

10-Year Treasury Note Rate, %

Interest Rate Assumptions:

10-Year Treasury Notes

OMB FY 2014 MSRMay 2013

Implied ForwardRates as of 6/28/2013

OMB’s economic assumption of the 10-year Treasury note rates were developed in late May 2013 and are from the Table 2 of the 2014 Mid-Session Review Budget of the US Government.” The implied 10-Year Treasury note forward rates are the averages for 

10-Year Treasury Rate,2.487%, as of 6/28/2013
(200)

0

200400600800

1,000

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ bn

End of Fiscal Year

Projected Net Borrowing Assuming Future Issuance Remai

Constant

Bills 2/3/5 7/10/30 TIPS Projected Net Marketable

Borrowing (data labels at bottom)

OMB’s Projections of

Borrowing from the Public

Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

by the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are baFederal Reserve’s June 2013 primary dealer survey. Assumes issuance sizes for Bills, Nominal Coupons and TIPS are unchanged 

6/28/2013 levels. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. No att

to match future financing needs. OMB’s projections of borrowing from the public projections are from Table S-11 of the “Fiscal YSession Review Budget of the US Government.” CBO’s estimate of the borrowing from the public are from Table 2 of the “An An

President's 2014 Budget.”Data labels represent historical net marketable borrowing and projected net borrowing assuming future issuance remains constan

sizes. See table on the following page for details.

861 736 632 492 316 335 449 403 290 
Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

by the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are baFederal Reserve’s June 2013 primary dealer survey. Assumes issuance sizes for Bills, Nominal Coupons and TIPS are unchanged 

6/28/2013 levels. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. No att

to match future financing needs. OMB’s projections of borrowing from the public projections are from Table S-11 of the “Fiscal YSession Review Budget of the US Government.” CBO’s estimate of the borrowing from the public are from Table 2 of the “An An

President's 2014 Budget.”

Historical Net Marketable Borrowing and Projected Net Borro

Assuming Future Issuance Remains Constant, $ Billion

End of Fiscal 

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

Historical Net 

Marketable 

Borrowing/Projected Net 

Borrowing Capacity

OMB’s Projectio

of Borrowing 

from the Publ

2009 503 732 514 38 1,7862010 (204) 869 783 35 1,4832011 (311) 576 751 88 1,1042012 139 148 738 90 1,1152013 (118) 148 720 111 861 932 2014 (13) (8) 669 88 736 874 2015 0 (94) 639 87 632 787 2016 0 (18) 442 67 492 736 2017 0 (7) 256 68 316 661 2018 0 0 273 62 335 634 2019 0 134 243 71 449 677 2020 0 126 236 40 403 712 2021 0 54 225 11 290 690 2022 0 38 249 (3) 284 712 

2023 0 (13) 212 (5) 194 666 
Section III:

Portfolio Metrics
40

455055606570758085

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Weighted Average Maturity (Months)

Calendar Year

Weighted Average Maturity of Marketable Debt Outstandi

Historical Adjust Nominal Coupons to Match Financing Needs Historical Average from 

Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury.

66.0 months on 6/28/2013

58(Hfr
Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury. See table on the following page for details.Maturity distribution by original issuance type and term can be found in the appendix (slide 43).

02468

101214161820

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

$ tr

End of Fiscal Year

Projected Maturity Profile, $ Trillion

< 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr
Recent and Projected Maturity Profile, $ Billion

Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury.Maturity distribution by original issuance type and term can be found in the appendix (slide 43).

End of Fiscal 

Year < 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr To2007 1,581 663 341 545 267 480 557 4,4

2008 2,152 711 280 653 310 499 617 5,22009 2,702 774 663 962 529 672 695 6,92010 2,563 1,141 869 1,299 907 856 853 8,42011 2,620 1,272 1,002 1,516 1,136 1,053 1,017 9,62012 2,889 1,395 1,109 1,847 1,214 1,108 1,181 10,2013 2,947 1,525 1,177 2,030 1,425 1,165 1,331 11,2014 3,078 1,585 1,478 2,230 1,429 1,159 1,538 12,2015 3,138 1,894 1,466 2,372 1,561 1,192 1,683 13,2016 3,344 1,903 1,709 2,477 1,543 1,232 1,859 14,2017 3,456 2,108 1,686 2,593 1,578 1,294 2,045 14,2018 3,662 2,188 1,729 2,670 1,645 1,338 2,200 15,2019 3,634 2,264 1,903 2,707 1,787 1,474 2,380 16,2020 3,825 2,412 1,834 2,904 1,803 1,479 2,648 16,2021 3,967 2,353 1,994 3,032 1,837 1,536 2,921 17,2022 3,908 2,525 2,142 3,117 1,941 1,536 3,233 18,2023 4,081 2,694 2,120 3,141 2,018 1,518 3,547 19,
Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury. See table on the following page for details.Maturity distribution by original issuance type and term can be found in the appendix (slide 43).

0%

10%20%30%40%50%60%70%80%90%

100%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

End of Fiscal Year

Projected Maturity Profile, Percent

< 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10
End of Fiscal 

Year < 1yr [1, 2) [2, 3) [3, 5) [5, 7) [7, 10) >= 10yr [02007 35.7% 15.0% 7.7% 12.3% 6.0% 10.8% 12.6% 58

2008 41.2% 13.6% 5.4% 12.5% 5.9% 9.6% 11.8% 602009 38.6% 11.1% 9.5% 13.7% 7.6% 9.6% 9.9% 592010 30.2% 13.4% 10.2% 15.3% 10.7% 10.1% 10.0% 532011 27.2% 13.2% 10.4% 15.8% 11.8% 10.9% 10.6% 502012 26.9% 13.0% 10.3% 17.2% 11.3% 10.3% 11.0% 502013 25.4% 13.1% 10.1% 17.5% 12.3% 10.0% 11.5% 482014 24.6% 12.7% 11.8% 17.8% 11.4% 9.3% 12.3% 492015 23.6% 14.2% 11.0% 17.8% 11.7% 9.0% 12.6% 482016 23.8% 13.5% 12.1% 17.6% 11.0% 8.8% 13.2% 492017 23.4% 14.3% 11.4% 17.6% 10.7% 8.8% 13.9% 492018 23.7% 14.2% 11.2% 17.3% 10.7% 8.7% 14.3% 492019 22.5% 14.0% 11.8% 16.8% 11.1% 9.1% 14.7% 482020 22.6% 14.3% 10.8% 17.2% 10.7% 8.7% 15.7% 472021 22.5% 13.3% 11.3% 17.2% 10.4% 8.7% 16.6% 472022 21.2% 13.7% 11.6% 16.9% 10.5% 8.3% 17.6% 462023 21.3% 14.1% 11.1% 16.4% 10.6% 7.9% 18.6% 46

Recent and Projected Maturity Profile, Percent

Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury.Maturity distribution by original issuance type and term can be found in the appendix (slide 43).
Section IV:

Demand
*Weighted averages of Competitive Awards.**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS’ 10-Year Equ

constant auction BEI is used as the inflation assumption.

Summary Statistics for Fiscal Year 2013 Q3 Auctions

Security

Type

Term Stop Out Rate (%)* Bid‐to‐Cover Ratio* Competitive Awards ($ bn) % Primary Dealer* % Direct* % Indirect* Non‐Competitive Awards ($ bn) 

Bill 4-Week 0.043 4.5 499.5 66.7% 8.3% 25.0% 3.6 Bill 13-Week 0.054 4.7 461.9 76.3% 8.8% 14.8% 7.3 Bill 26-Week 0.088 5.0 385.6 62.3% 9.2% 28.4% 6.2 Bill 52-Week 0.137 4.6 121.3 59.7% 7.7% 32.6% 0.7 Bill CMBs 0.050 4.3 30.0 89.0% 5.6% 5.4% 0.0 

Coupon 2-Year 0.257 3.3 104.2 58.2% 20.7% 21.1% 0.5 Coupon 3-Year 0.426 3.2 95.6 59.3% 13.1% 27.6% 0.1 Coupon 5-Year 0.838 2.8 104.9 37.4% 18.0% 44.6% 0.1 Coupon 7-Year 1.300 2.7 87.0 41.5% 20.0% 38.5% 0.0 Coupon 10-Year 1.932 2.7 66.0 40.2% 19.1% 40.6% 0.0 Coupon 30-Year 3.102 2.5 42.0 48.5% 14.5% 37.0% 0.0 

TIPS 5-Year (1.311) 2.2 17.9 46.1% 7.8% 46.1% 0.1 

TIPS 10-Year (0.225) 2.5 13.0 30.9% 12.4% 56.8% 0.0 TIPS 30-Year 1.420 2.5 7.0 38.9% 0.4% 60.8% 0.0 

Total Bills 0.066 4.7 1,498.3 68.4% 8.6% 23.0% 17.9 

Total Coupons 1.053 2.9 499.6 48.0% 17.8% 34.2% 0.8 

Total TIPS (0.436) 2.4 37.9 39.6% 8.0% 52.4% 0.1 
1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

J12

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)
1.5

2

2.5

3

3.5

4

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec12

Bid-to-Cover Ratio

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

(6-Month Moving Average)

2-Year 3-Year 5-Year
2

2.22.42.62.8

3

3.23.4

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec12

Bid-to-Cover Ratio

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

(6-Month Moving Average)

7-Year 10-Year 30-Year
0

0.5

1

1.5

2

2.5

3

3.5

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) 20-Year 30-Year
Primary

Dealers

66.8%

Other Dealers

& Brokers

8.5%

Investment

Funds

11.2%

Foreign &

International

8.8%

Other

4.7%

Investor Class Auction Awards: Bills

Fiscal Year 2013-Q3

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.
-2.0%

-1.5%-1.0%-0.5%

0.0%0.5%1.0%1.5%2.0%

Primary

Dealers

Other Dealers

& Brokers

Investment

Funds

Foreign &

International

Change from Previous 4 Quarters

Change in Demand Over the Last Year in Bills, Auction Award

Investor Class

2013-Q2 less Previous 4 Quarters 2013-Q3 less Previous 4 Quarters

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance. These results may include seasonal effects.“Previous 4 Quarters” = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
Primary

Dealers

52.4%

Other 

Dealers

& Brokers

7.5%

Investment

Funds

22.4%

Foreign &

International

16.9%

Other

0.8%

Investor Class Auction Awards:

2-, 3-, and 5-Year Nominal 

Securities

Fiscal Year 2013-Q3

Other D

& Bro

5.4%

Investment

Funds

37.2%

Foreign &

International

14.4%

Other

0.9%

Investor Class Aucti

7-, 10-, and 30-Yea

Securitie

Fiscal Year 20

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.
-4%

-2%

0%2%4%6%8%

Primary

Dealers

Other Dealers

& Brokers

Investment

Funds

Foreign &

International

Change from Previous 4 Quarters

Change in Demand Over the Last Year in 2-, 3-, 5-Year Nomi

Securities, Auction Awards by Investor Class

2013-Q2 less Previous 4 Quarters 2013-Q3 less Previous 4 Quarters

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance. These results may include seasonal effects.“Previous 4 Quarters” = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
-6%

-4%-2%

0%2%4%6%8%

Primary

Dealers

Other Dealers

& Brokers

Investment

Funds

Foreign &

International

Change from Previous 4 Quarters

Change in Demand Over the Last Year in 7-, 10-, 30-Year 

Nominal Securities, Auction Awards by Investor Class

2013-Q2 less Previous 4 Quarters 2013-Q3 less Previous 4 Quarters

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance. These results may include seasonal effects.“Previous 4 Quarters” = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
Primary

Dealers

39.5%

Other Dealers

& Brokers

1.9%

Investment

Funds

43.7%

Foreign &

International

14.4%

Other

0.5%

Investor Class Auction Awards:

TIPS

Fiscal Year 2013-Q3

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.
-8%

-6%-4%-2%

0%2%4%6%8%

10%

Primary

Dealers

Other Dealers

& Brokers

Investment

Funds

Foreign &

International

Change from Previous 4 Quarters

Change in Demand Over the Last Year in TIPS, Auction Awa

by Investor Class

2013-Q2 less Previous 4 Quarters 2013-Q3 less Previous 4 Quarters

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance. These results may include seasonal effects.“Previous 4 Quarters” = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
0

20406080

100120140160180200

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Monthly Private Award ($bn)

Total Foreign Awards of Treasuries at Auction, $ Billion

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

Foreign includes both private sector and official institutions.
0%

5%

10%15%20%25%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

% Awarded to Foreign Investors

Foreign Awards of Bills at Auction, Percent

Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
0%

5%

10%15%20%25%30%35%40%45%50%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

% Awarded to Foreign Investors

Foreign Awards of Nominal Coupons at Auction, Percent

2/3/5 7/10/30

Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
0%

5%

10%15%20%25%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

% Awarded to Foreign Investors

Foreign Awards of TIPS at Auction, Percent

5-Year 10-Year 20-Year 30-Year

Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
35%

40%45%50%55%60%65%70%75%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction, Percent

4/13/26-Week (13-week moving average) 52-Week (6-month moving average)2/3/5 (6-month moving average) 7/10/30 (6-month moving average)TIPS (6-month moving average)
Appendix
Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury. See table on the following page for details.

0%

10%20%30%40%50%60%70%80%90%

100%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

% of Portfolio

End of Fiscal Year

Projected Portfolio Composition by Issuance Type, Percen

Bills 2/3/5 7/10/30 TIPS (principal accreted to projection date)
End of Fiscal Year Bills 2-, 3-, 5-Year 

Nominal Coupons

7-, 10-, 30-Year 

Nominal Coupons

Total Nominal 

Coupons

TIP

a

pro

2006 21.3% 40.5% 29.0% 69.5% 2007 21.6% 38.9% 29.2% 68.1% 2008 28.5% 34.5% 26.9% 61.4% 2009 28.5% 36.2% 27.4% 63.6% 2010 21.1% 40.1% 31.8% 71.9% 2011 15.4% 41.4% 35.9% 77.3% 2012 15.0% 38.4% 39.0% 77.4% 2013 13.3% 36.4% 42.3% 78.7% 2014 12.4% 34.2% 45.0% 79.2% 2015 11.7% 32.1% 47.5% 79.7% 2016 11.0% 31.2% 48.9% 80.1% 2017 10.5% 31.0% 49.4% 80.4% 2018 10.1% 30.6% 50.0% 80.6% 2019 9.6% 30.5% 50.3% 80.8% 2020 9.2% 30.5% 50.6% 81.1% 2021 8.8% 30.5% 51.1% 81.6% 2022 8.4% 30.4% 51.7% 82.1% 2023 8.1% 30.1% 52.4% 82.5% 

Recent and Projected Portfolio Composition by Issuance Type, 

Portfolio & SOMA holdings as of 6/28/2013 and estimated projections of the Large Scale Asset Purchase program, announced o

the Federal Reserve, assumed to last until June 2014 with SOMA redemptions until December 2018. These assumptions are based Reserve’s June 2013 primary dealer survey. To match OMB’s projected borrowing from the public for the next 10 years, nominal securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. The principal on the TIPS securities were accreted projection date based on market ZCIS levels. OMB’s projections of borrowing from the public projections are from Table S-11 of 

2014 Mid-Session Review Budget of the US Government.” This scenario does not represent any particular course of action that Texpected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of sec

Treasury.
*Weighted averages of Competitive Awards. 

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

Issue Settle Date Stop Out

Rate (%)*

Bid‐to‐Cover

Ratio*

Competitive

Awards ($ bn)

% Primary

Dealer* % Direct* % Indirect* Non‐Competitive Awards($ bn) SOMA Add Ons($ bn) 

4‐Week 4/4/2013 0.070 4.26 44.74 63.1% 9.3% 27.7% 0.26 0.00 4‐Week 4/11/2013 0.060 4.58 44.70 52.9% 7.2% 39.9% 0.30 0.00 

4‐Week 4/18/2013 0.050 4.43 44.69 65.7% 6.3% 28.0% 0.26 0.00 4‐Week 4/25/2013 0.045 4.45 39.75 73.0% 9.7% 17.3% 0.25 0.00 4‐Week 5/2/2013 0.025 4.93 29.18 73.9% 8.7% 17.3% 0.26 0.00 4‐Week 5/9/2013 0.000 5.42 19.76 83.3% 6.5% 10.3% 0.24 0.00 4‐Week 5/16/2013 0.010 5.08 19.73 80.7% 8.6% 10.8% 0.27 0.00 4‐Week 5/23/2013 0.035 4.41 44.77 61.8% 8.1% 30.1% 0.23 0.00 4‐Week 5/30/2013 0.030 4.12 44.19 56.0% 5.9% 38.2% 0.23 0.00 4‐Week 6/6/2013 0.040 4.38 34.75 71.5% 7.9% 20.6% 0.25 0.00 4‐Week 6/13/2013 0.040 4.63 29.73 65.1% 10.1% 24.7% 0.27 0.00 4‐Week 6/20/2013 0.045 4.61 29.72 72.6% 9.9% 17.5% 0.28 0.00 4‐Week 6/27/2013 0.030 4.55 29.06 78.3% 9.6% 12.1% 0.25 0.00 

13‐Week 4/4/2013 0.075 4.61 33.87 72.8% 7.2% 20.0% 0.48 0.00 

13‐Week 4/11/2013 0.065 4.87 34.36 79.4% 10.2% 10.4% 0.49 0.00 13‐Week 4/18/2013 0.055 4.40 34.35 75.7% 7.7% 16.6% 0.54 0.00 13‐Week 4/25/2013 0.050 4.75 31.53 80.8% 6.6% 12.6% 0.47 0.00 13‐Week 5/2/2013 0.050 4.86 27.86 82.7% 10.6% 6.7% 0.42 0.00 13‐Week 5/9/2013 0.040 4.96 28.39 79.2% 10.4% 10.3% 0.51 0.00 13‐Week 5/16/2013 0.045 4.86 28.36 66.3% 9.8% 23.9% 0.49 0.00 13‐Week 5/23/2013 0.045 4.54 29.41 73.5% 6.6% 19.8% 0.49 0.00 13‐Week 5/30/2013 0.045 4.55 28.82 71.9% 5.9% 22.1% 0.48 0.00 13‐Week 6/6/2013 0.045 4.97 29.36 78.2% 7.0% 14.9% 0.44 0.00 13‐Week 6/13/2013 0.045 4.79 29.48 80.7% 9.2% 10.1% 0.52 0.00 13‐Week 6/20/2013 0.045 4.35 29.41 77.3% 11.2% 11.5% 0.49 0.00 13‐Week 6/27/2013 0.060 4.30 28.48 74.3% 12.9% 12.8% 0.54 0.00 26‐Week 4/4/2013 0.105 4.85 29.10 69.2% 6.6% 24.2% 0.40 0.00 26‐Week 4/11/2013 0.095 4.95 29.13 70.4% 11.8% 17.8% 0.48 0.00 26‐Week 4/18/2013 0.090 4.85 28.97 61.9% 8.2% 29.9% 0.43 0.00 26‐Week 4/25/2013 0.085 5.14 27.05 62.4% 5.4% 32.2% 0.40 0.00 26‐Week 5/2/2013 0.080 5.43 22.87 52.7% 7.9% 39.4% 0.33 0.00 26‐Week 5/9/2013 0.075 5.37 23.11 60.4% 9.9% 29.7% 0.40 0.00 26‐Week 5/16/2013 0.080 5.25 23.10 70.3% 7.8% 21.9% 0.42 0.00 26‐Week 5/23/2013 0.085 4.67 24.21 56.3% 10.0% 33.7% 0.42 0.00 26‐Week 5/30/2013 0.080 5.13 23.87 48.5% 9.6% 41.9% 0.38 0.00 26‐Week 6/6/2013 0.080 5.15 23.91 59.0% 11.2% 29.8% 0.41 0.00 26‐Week 6/13/2013 0.080 4.99 24.15 61.2% 12.0% 26.8% 0.37 0.00 26‐Week 6/20/2013 0.075 4.78 24.29 56.7% 12.9% 30.3% 0.43 0.00 26‐Week 6/27/2013 0.105 4.53 23.60 60.3% 6.7% 33.0% 0.42 0.00 52‐Week 4/4/2013 0.140 4.89 24.74 59.9% 7.3% 32.7% 0.16 0.00 52‐Week 5/2/2013 0.105 4.91 22.67 62.8% 7.7% 29.6% 0.13 0.00 52‐Week 5/30/2013 0.135 4.19 24.58 51.3% 8.3% 40.4% 0.15 0.00 52‐Week 6/27/2013 0.160 4.10 24.59 64.9% 7.9% 27.1% 0.13 0.00 

CMBs 6/4/2013 0.050 4.28 30.00 89.0% 5.6% 5.4% 0.00 0.00 

Bill Issues
*Weighted averages of Competitive Awards.**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS’ 10-Year Equ

constant auction BEI is used as the inflation assumption.

Issue Settle Date Stop Out

Rate (%)*

Bid‐to‐Cover

Ratio*

Competitive

Awards ($ bn)

% Primary

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

O

2‐Year 4/30/2013 0.233 3.63 34.76 51.6% 27.7% 20.7% 0.14 

2‐Year 5/31/2013 0.283 3.04 34.74 65.5% 12.6% 21.9% 0.16 

2‐Year 7/1/2013 0.430 3.05 34.76 56.3% 7.8% 35.8% 0.13 

3‐Year 4/15/2013 0.342 3.24 31.88 64.9% 16.2% 19.0% 0.02 

3‐Year 5/15/2013 0.354 3.38 31.86 54.7% 14.6% 30.7% 0.04 

3‐Year 6/17/2013 0.581 2.95 31.87 58.4% 8.4% 33.1% 0.03 

5‐Year 4/30/2013 0.710 2.86 34.98 42.4% 14.0% 43.6% 0.02 

5‐Year 5/31/2013 1.045 2.79 34.97 32.6% 23.3% 44.0% 0.03 

5‐Year 7/1/2013 1.484 2.45 34.95 43.5% 3.6% 53.0% 0.04 

7‐Year 4/30/2013 1.155 2.71 28.99 41.0% 19.7% 39.3% 0.01 

7‐Year 5/31/2013 1.496 2.70 28.98 38.5% 20.7% 40.8% 0.02 

7‐Year 7/1/2013 1.932 2.61 28.99 37.8% 15.7% 46.4% 0.01 

10‐Year 4/15/2013 1.795 2.79 20.99 33.6% 29.1% 37.3% 0.01 10‐Year 5/15/2013 1.810 2.70 23.98 49.2% 16.9% 33.9% 0.02 

10‐Year 6/17/2013 2.209 2.53 20.98 36.6% 11.7% 51.7% 0.02 30‐Year 4/15/2013 2.998 2.49 12.99 49.3% 19.2% 31.4% 0.01 30‐Year 5/15/2013 2.980 2.53 15.99 45.7% 15.5% 38.8% 0.01 30‐Year 6/17/2013 3.355 2.47 13.00 51.3% 8.5% 40.2% 0.00 

Issue Settle Date Stop Out

Rate (%)*

Bid‐to‐Cover

Ratio*

Competitive

Awards ($ bn)

% Primary

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

O

5‐Year 4/30/2013 (1.311) 2.18 17.93 46.1% 7.8% 46.1% 0.07 

10‐Year 5/31/2013 (0.225) 2.52 12.97 30.9% 12.4% 56.8% 0.03 

30‐Year 6/28/2013 1.420 2.48 6.98 38.9% 0.4% 60.8% 0.02 

Nominal Coupon Securities

TIPS
TBAC Presentation to Treasury: 

Charge 1Financing this QuarterWe would like the Committee’s advice on the following:• The composition of Treasury notes and bonds to refund approxim

$69.6 billion of Treasury notes maturing on August 15, 2013.

• The composition of Treasury marketable financing for the remain

the July-September quarter, including cash management bills.

• The composition of Treasury marketable financing for the Octobe

December quarter, including cash management bills.
Principles for Debt Issuance Strategy

2

 Extend the Weighted Average Maturity (WAM) of the Treasury 

 Continuing to increase the WAM will further reduce Treasury’s rollov

reduce the volatility of Treasury’s net interest cost should interest rateunexpectedly.

 Safeguard the liquidity and depth of the Treasury Bills market

 Treasury must ensure that there continues to be an adequate supply o

increased structural demand for high-quality, short duration securitie

 Incorporate Floating Rate Notes (FRN) into Treasury’s issuance c

 Treasury expects to issue the first FRN in either Q4 2013 or Q1 2014. 
209 

222 (5)

(123) (117)

(27)

(144) (257) (291)

(345)

0

100200300400500600700800900

1,000

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

$ bn

Fiscal Year

Without Fed Reinvestments

CBO: Change in DebtHeld by the Public

Data Labels:Over(+)/Under(-) Financed

Without FedReinvestments

Potential Impacts on Borrowing Need

3

CBO’s change in debt held by the public is from “An Analysis of the President’s 2014 Budget,” published in May 2013.

e.g. The current auction schedule would need to be adjusted by $123 billion more. 209 

225 

169 60 191 

71 

0

100200300400500600700800900

1,000

2014

2015

2016

2017

2018

2019

$ bn

Fiscal Year

With Fed Reinves

CBO: Change in DebtHeld by the Public

Data Labels:Over(+)/Under(
Presentation to TBAC

July 2013

Assessing fixed income market liquid
Committee Charge #2: Fixed Income Market Liquidity

2

Since the 2008 financial crisis, there have been a number of develofinancial markets, such as new regulations, changes in market structechnological advancements. To varying degrees, these developments have had an impact on the and structure of the global financial marketplace. We would like the to comment on the extent to which these changes could impact liquifixed-income markets. What is the outlook for fixed-income liquidity over the longer-term?
Executive summary

● Market turnover has if anything increased since the financial crisis● But liquidity is about much more than turnover

– Tendency to disappear abruptly when really needed

● Primary liquidity not really a problem; major issues all in secondary● Neither turnover nor the street have been able to keep pace with the massive expansion i● Regulations have created multiple constraints likely to curtail liquidity when it is really nee

– Most have pushed liquidity towards Treasuries, reducing it in risky assets:

• Basel risk-weightings, swaps clearing, LCR requirements

– Now, supplementary leverage ratios risk curtailing it even in Treasuries: dealers likely to 

requirements by reducing assets rather than raising capital

● Effects of regulations to date have been offset by Fed policy pushing investors in the oppo

– Significant demand for fixed income assets in general, and risky assets in particular

● Technology and shifts in market structure have added to the appearance of liquidity, but d

depth

● Potential for significant dislocation when investor flows reverse

3
4

Agenda

Trends in fixed income liquidity

Effects of policy and market structure

Effects of new regulations
Simple market turnover

5

Dollar turnover suggests no great drop sinc

Turnover in creditUS traded volumes in credit ($bn, daily

Source: SIFMA, FINRA TRACE, Haver Analytics.

Turnover in Treasuries & AgenciesAverage daily traded volumes ($bn) 

Source: SIFMA. Agency and MBS data uses primary dealer transactions. TRACEreported volumes are much lower.

05

10152025

2001 2003 2005 2007 2

IG Corp

HY

0

100200300400500600

1996 2001 2006 2011

Treasury

MBS

Agency
But what do we mean by liquidity?

● Tightness: difference between 

bid and offer

● Depth: size of transaction that 

can be absorbed without affecting prices

● Immediacy: speed with which 

orders can be executed

● Resiliency: ease with which 

prices return to “normal”

6

Liquidity has many facets

Volumes up; liq10y UST off-the-run on-average daily traded Tr

Source:Haver Analytics.

300350400450500550600

02 03 04 05 06 07 0

Traded 

volume

Off-the-ru

spread 

(inverted

The four dimensions of 

liquidity

Source: Borio, C., Market liquidity and stress: selected issues and policy implications, BIS (2000).

Ingredients for a 

liquid market

● Competitive market 

structure

● Low fragmentation● Minimization of 

transaction costs

● Heterogeneity of market 

participants

● Sound infrastructure

Source: BIS Committee on the Global Financial System, CGFS issues recommendations for the design of liquid markets, BIS (1999)..
Bid-offer tends to be spiky

7

Liquidity typically fine – until you actually ne

Trend improving, spikes notCost to trade 2k TY futures, yield bp

0

0.10.20.30.40.50.60.7

Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

Source: Bloomberg.

Prone to sudden spikesModelled* bid-offer in credit, 15-day 

Source: Bloomberg. See “A Simple Implicit MeasuSpread”, R. Roll, Journal of Finance (1984).

05

101520253035

05 06 07 08 09 10 
Assessing liquidity in primary

8

0%

20%40%60%80%

100%

04 05 06 07 08 09 

Primary dealer

Direct

Indirect

... though direct participalead to secondary “opaciTreasury auction participation, %

Source: NY Fed.

Primary markets are generally not a probl

Record volumes in primary...Gross new issuance of $ corporates (fin+nonfin, fixed + floating), $bn

0

200400600800

1,0001,200

2000 2002 2004 2006 2008 2010 2012

Source: Dealogic. 2013 data are annualized from first seven months.
Assessing liquidity in secondary

9

Secondary trading requires risk warehous

Corp turnover concentrated in very few bondsCorp bonds ranked by annual traded volume in block trades, $bn

Source: TRACE.

012345678

0% 20% 40% 60% 80% 100%

2013

2007

Post-crisis, balance sheAsset swap spread of TIP Jan25, bp

-50

0

50

100150200

07 08 09 10 

Source: TRACE.
Accounting for the growth in the market

10

Markets have grown rapidly; 

neither turnover nor the street has kept 

...but has not kept pace wTurnover, multiple of outstandings, ann

Source: SIFMA, TRACE.

The street has become more efficient...US traded volumes (IG+HY, $bn) vs inventory ($bn) and ratio

0

50

100150200250300350400450

05 06 07 08 09 10 11 12 13

01234567

Traded volume

Turnover / street 

inventory

Street inventory

Source: FINRA TRACE,, Haver Analytics.

02468

1012

2002 2005 2008 

Agencies

Corp
11

How are investors responding?

Making trades smaller – or not trading at 

...and even those arAverage block trade size, US IG

1012141618202224262830

05 06 07 08 09 10 

Source:FINRA TRACE.

0%

10%20%30%40%50%60%70%80%90%

100%

05 06 07 08 09 10 11 12 13

Block 

trades 

(>$5m)

$1-5m 

trades

Fewer large trades...Block trade volume as % total traded volume, US 

Source:FINRA TRACE.
12

Agenda

Trends in fixed income liquidity

Effects of policy and market structure

Effects of new regulations
13

A tighter regulatory framework

Reduced risk – but also reduced liquidit

Volcker Rule

Orderly 

liquidation

CRD 4

Basel 3 RWA 

NSFR

EU FTT

LCR

Suppleme

leverage 

MiFID

SIFI Surcharge

Executive Mandatory compensation swaps clearing
Capital cost under Basel 3

13

1.0x

3.4x 1.0x

Bond Description

Average Tenor 2-3 years

IG Ratings Average of AAA, AA, A, BBBHY Ratings Average of BB, B, CCC

Note: Capital Impact from Basel 1 to Basel 3 is based on single bonds and does not take into account portfolio diversification effects

3-5x increase in charges for corporate bon

3x cost for investment gradeRisk-weighted asset charges ($m)

5x cost for high yieldRisk-weighted asset charges ($m)

Basel 1 Basel 2 Basel 3 Basel 1 Basel 2 
Swaps clearing

15

0%2%4%6%8%

10%12%14%

2y 5y 1

OTC swaps (legacy = 0)Cash TreasuriesDeliverable swap futuresTreasury FuturesOTC swaps (new, cleareOTC swaps (new, unclea

Activity migrating from swaps towards futu

...even before margins wInitial margin requirements (% notion

Source: CFTC. * Calculated from current VaR levels.

-2.5-2.0-1.5-1.0-0.5

0.00.51.01.52.02.5

Receivers Payers

Bank

Insurance

Servicers

FHLB

Pension

Non-bank fin

Corp GSE

Muni

Hedge fund / 

market maker / 

residual

A market out of balance...Imbalance between OTC swaps payers and receivers, $bn DV01

Source: Dealer estimates.
Higher balance sheet charges have affected:

16

0

200400600800

100012001400

01 03 05 07 0

Corp

-200-150-100

-50

0

50

100150200250300

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

UST

Corp

GSE

What the street holdsPrimary dealer positions by asset class, $bn

Source: NY Fed, Haver Analytics. Source: NY Fed, Haver Analytics.

What the street is willing Primary dealer financing (reverse re

Dealers can no longer afford to act as credit wa
Supplementary leverage ratios

17

Leverage ratios will leave dealers less will

to provide repo financing and to hold US

The silently beating heart of the marketPrimary dealer total financing ($tn) vstotal daily traded volume across US fixed income ($bn)

02004006008001,000

01234567

1996 1999 2002 2005 2008 2011

Repo 

outstanding 

($tn)

Daily traded 

volume ($bn)

Source: SIFMA. Dealer financing = repo + reverse repo.

● Key leveraged players in fixed

consume dealer balance shee

– Relative value players police the – REITs, hedge funds police the M

● Supplementary leverage ratios 

reduce dealer repo activity (low sheet intensive)

● Would increase yield curve an

volatility
How much might leverage ratios cost?

18

Cut assets, or raise more capital?Changes in leverage ratio (bp) produced by shifts in balance sheet ($bn) and capital ($bn)

10bp higher ratio can be offset by $2.5bn in c

or by shedding $50bn in assets

-50 -40 -30 -20 -10 0 10 20 30 40 50 100 

0 11 6 6 4 2 0 -2 -4 -6 -8 -10 -20 

0.5 13 8 8 6 4 2 0 -2 -4 -6 -8 -18 

1 15 10 10 8 6 4 2 0 -2 -4 -6 -16 

1.5 17 13 13 10 8 6 4 2 0 -2 -4 -14 

2 19 15 15 13 10 8 6 4 2 0 -2 -12 

2.5 21 17 17 15 12 10 8 6 4 2 0 -10 

3 23 19 19 17 15 12 10 8 6 4 2 -8 

3.5 25 21 21 19 17 14 12 10 8 6 4 -6 

4 28 23 23 21 19 17 14 12 10 8 6 -4 

4.5 30 25 25 23 21 19 16 14 12 10 8 -2 

5 32 27 27 25 23 21 19 16 14 12 10 0 

10 53 48 48 46 44 41 39 37 35 33 30 20 15 74 69 69 67 64 62 60 57 55 53 51 40 20 95 90 90 88 85 83 80 78 76 73 71 60 

Change in balance sheet assets ($bn)

Increase in 

capital ($bn)
OCI changes

19

Will reduce banks’ role as stabilizer in agency 

And that was only the first 1Net unrealized gains (losses) on availabledomestic commercial banks, $bn

Source: Federal Reserve H.8.

● Large banks must now reflect mark-tomarket gains/losses in tier-1 capital ● Recent 100 bp sell-off in Treasury market 

dented tier-1 capital by ~$40 bn

● Worsened tier-1 capital ratio by ~0.3%

-50-40-30-20-10

0

102030405060

09 10 11 12 
20

Agenda

Trends in fixed income liquidity

Effects of policy and market structure

Effects of new regulations
Regulations and monetary policy in conflict

21

Regulations moving one way; investors moving 

-40-20

0

20406080

100120

2008 2009 2010 

HYIGGovtAvg co

Investors moving away froNet mutual fund sales, $bn

0%

10%20%30%40%50%60%70%80%90%

100%

1996 2001 2006 2011

AgencyCorpABSMuniNon-AgencyMBSTreasury

Liquidity moving towards Treasuries...Distribution of daily market turnover, %

Source: SIFMA. Source: ICI, Haver Analytics.
22

Credit awash with inflows

Entrance with no exit?US credit mutual fund assets vs de($bn, IG+HY)

Source: ICI, NY Fed, Bloomberg, Haver Analytics.

Liquidity likely to prove a problem on the way 

0

100200300400500600700800900

95 00 05 

Mutual fund 

assets

-10%

0%

10%20%30%40%50%60%70%80%90%

Sep-09 Sep-10 Sep-11 Sep-12

Mutual funds /

ETFs

All others

Tourist influx?Percentage growth in credit holdings since Sep09

Source: Federal Reserve, Haver Analytics.
ETFs

23

Still small, but symptomatic of a broader is

0123456

UST Corp Equity

Jun-07Jun-13

Small, but growing fast...ETF outstandings vs underlying mkt size, %

Source: ICI, Haver Analytics.

...and vulnerable to any US HY JNK ETF discount to net ass

-1.5-1.0-0.5

0.00.51.01.5

Oct-12 Jan-13 A

an

m

Source: Bloomberg.
E-trading: phantom liquidity personified

24

Much volume, little depth

Massive growth in electronic inquiry...Number* of price inquiries on Market Axessby size, IG Corp, annual

Source: Market Axess. 2013 data is annualized from 1H.* Uses single dealer data thought to be representative of broad market.

0

200000400000600000800000

10000001200000

2005 2007 2009 2011 2013a

5m+3-5m1-3m500k-1m250-500k0-250k

...shame so much is i$ volume of Market Axess inquiri

0%

10%20%30%40%50%60%70%80%90%

100%

2005 2007 2009 

Source: Market Axess.* Uses single dealer data thought to be representa
Shifts in market structure

25

Dominated by the Fed and foreignersHolders of US Treasuries, % outstandings

Source: Federal Reserve Flow of Funds, Haver Analytics.

Total return investors on tHolders of US Corporate bonds, % out

Source: Federal Reserve Flow of Funds, Haver Analyt

Reduced heterogeneity

0%

10%20%30%40%50%60%70%80%90%

100%

90 00 10

0%

10%20%30%40%50%60%70%80%90%

100%

90 00 10

OtherInsurancePensionBanks & brokersFedForeignMutual fundsHousehold / Corp
The impact of monetary policy (1)

26

Not just increased demand – also reduced s

Source: Haver Analytics. *: Federal Reserve, BoJ & ECB

Net issuance down from $4tn to $1tnNet iss. of new securities minus central bank* interventions, 12m rolling, $tn

-3-2-1

012345

03 05 07 09 11 13

CB interventions

Net

Govt.

Non-finbonds

Shares

Fin. 

GSEs

No one dares fight the FedUS BIG Corporate spread (bp) vs Fed s

Source: Federal Reserve.

0

500

1000150020002500

09 10 11 

Fed security 

holdings (5yr+)

US credit spread (inverted)

QE1 QE2 
The impact of monetary policy (2)

27

Investors just following the Fed

It also works in equitiesS&P 500 vs Fed security holdings ($bn)

Fed S&P 

buying 

($bn)

Chg 

pts

Chg

%

>5bn 570 54% <5bn 141 15% 

<0 -51 -2% 

It even works week by weWeekly Fed purchases vs associated mand equities, Jan09-Apr13

Source: Haver Analytics. Source: Bloomberg, Haver Analytics. 

5007009001100130015001700

0

500

10001500200025003000

09 10 11 12 13

Fed security holdings (5yr+)

S&P 500

+37% -3%

+10%

-11%

+38%
3.0

3.54.04.55.05.56.06.57.07.58.0

0

100200300400500600

88 93 98 03 08 13

Spreads

Net debt / EBITDA

Beware the potential for reversal

28

June will happen again, anNet flow into US credit mutual funds, % 

Source: ICI, Haver Analytics.

-15-10

-5

05

101520

85 90 95 00 

IG HY

-18%

10m

-27%

18m

-9%

6m

Potential for sudden dislocations

No longer following fundamentalsUS IG credit spreads (bp) vs nonfin corp leverage (times)

Source: Federal Reserve Flow of Funds, Bloomberg.
Conclusion

29

Turnover up; 

liquidity not

Regulations creating 

ever greater constraints

What happe

and invest

Liquidity significantly more challenged 

than has been visible to date
Treasury Borrowing Advisory Comm

Committee Charge #3

July 30, 2013
Committee Charge #3

Survey of Beneficial Debt Management Tools

Treasury continually seeks ways to minimize borrowing costs, better manage its liaenhance market liquidity, and expand the investor base in Treasury securities. In lig

objectives, we would like the Committee to comment on the need, if any, for Treasu

other types of debt management tools. In answering the question, please review the 

by debt management authorities around the world.
The charge to the TBAC concerning potentially beneficial debt management tools builds upon the work pr

Committee in February 2011 (1), which focused on potential new security types and debt management tool

relevance of the topics reviewed in 2011, it is important to note the differences today that inform the recom

 Recently announced introduction of a new product since the prior analysis, which considered a range of new p

— The Floating Rate Notes (FRN) program, to be launched later this year, represents the first new product lau

introduction of TIPS in 1997

— Given the infrequency with which Treasury introduces new products, it appears premature to consider a ne

until the FRN is well distributed and seasoned, at the earliest

 Improving budgetary conditions and resulting market dynamics

— The Federal budget deficit picture has improved substantially over the past several years -- and especially 

Consequently, Treasury's financing need is quite a bit smaller than previously anticipated. For example, in deficit amounted to $1.3 trillion while CBO currently expects the deficit in FY 2013 to be $642 billion (2)

— At the same time, it appears that the Federal Reserve is moving closer to starting to wind down its asset pu

implying that the volume of net supply that must be absorbed by the private market could rise despite a potissuance

 Given the expected reduced issuance requirements coupled with the new product launch, we concluded that t

analysis should focus exclusively on process enhancements rather than revisit the array of potential new produmotivate considering new products include:

— The passage of time such that the introduction of a new product is appropriate— Fed ceases rollover of its maturing Treasury securities, which increases Treasury’s marketable borrowing n— Meaningful regulatory changes that alter the demand dynamics for U.S. Treasury securities

All discussions and suggestions are intended to adhere to Treasury’s core principle of “regular and predic

Executive Summary

Notes1. Presentation available here: http://www.treasury.gov/press-center/press-releases/Documents/TBAC%20Discussion%20Charts%20Merged%202.2011.pdf2. “The U.S. Federal Budget: Infographic” by the Congressional Budget Office, December 2011 (https://cbo.gov/sites/default/files/cbofiles/attachments/budgetinfographic.pdf) and “

Fiscal Years 2013 to 2023” by the Congressional Budget Office, May 2013 (http://cbo.gov/sites/default/files/cbofiles/attachments/44172-Baseline2.pdf)
Treasury should remain a “regular and predictable” borrower in its debt management practice. Treasury is 

participant, not a market timer.

 Lowers costs by removing uncertainty and allowing investors to plan future commitments of funds Builds out a more complete yield curve and spreads out rollover risk Academic analysis has indicated that the years of opportunistic and flexible issuance by the U.S. Treasury res

volatility” compared with periods of “regular and predictable” debt management practices. 

— A study of the 5-year Treasury note yield between January 1971 and May 1975 showed that the variance d

opportunistic and flexible issuance was 2.9 basis points higher than during regular and predictable issuanc

— During the period, average short-term market volatility during auction announcement periods was noticeab

flexible issuance (1)

While in certain circumstances there may be value in reverse inquiry driven / opportunistic issuance, we d

these benefits would outweigh the costs associated with a divergence from the principal of regular and pr

and therefore should only be examined as a supplement to the current issuance schedule, if at all

 Regular and predictable issuance is an appropriate borrowing strategy if new issue sizes are large enough to r

prevent squeezes

— In the case where it is necessary to decrease issue sizes, additional techniques can be employed (i.e., low

percentage in an auction, increasing the non-competitive bid size in an auction, etc.)

Regular and Predictable Issuance is a Key Tenet of Debt M

Note1. “The Emergence of ‘Regular and Predictable’ As a Treasury Debt Management Strategy” by Kenneth D. Garbade, FRBNYH Economic Policy Review, March 2007
Section 1: Primary Market Techniques
Tool Auctions are the most common method of government bond issuance in major developed economies and have 

effective and transparent way to issue debt

 Current method in the U.S. is a single-price (Dutch) auction model

— Bidding process identifies the lowest yield (highest price) at which the auctioneer can sell all available bond— All bidders in the auction who bid below the auction yield (above the auction price) will receive bonds at the 

 Other sovereign countries employ an alternative multiple-price (English) auction method

— Successful bidders are awarded bonds at the yield at which they bid— Non-competitive bids are awarded at the weighted average price of competitive bids

Background Per a 2009 OECD study, 19 of 29 countries studied used single-price and 20 used multiple-price auction meth

 Empirical studies by Malvey, Archibald and Flynn in 1995 and by Malvey and Archibald in 1998 found evidenc

more aggressively in single-price auctions than in multiple-price auctions (2) (3) 

 Auction of 2-year notes in May 1991 under the prior multiple-price format, which led to a squeeze in secondary 

a catalyst for an investigation into alternative ways to conduct Treasury auctions

— The Dutch auction process was consequently adopted, along with limitations on the size of individual bids— By 1998, Treasury fully replaced multiple-price auctions with single-price auctions

Benefits In theory, multiple-price auctions could lower the cost of borrowingConsiderations In practice, multiple-price auctions enable the possibility of collusion and cornering Multiple-price auctions create a “Winner’s Curse” or “Seller’s Curse”: the winner pays the highest price, which 

scale back their bids in case they ultimately win

 In 1959 Milton Friedman argued that the simplicity of single-price auctions would reduce bidders’ cost of prepa

participation, and reduce the incentive to collude or to try to corner the market (4) 

Multiple-Price Auction Format

Notes1. “New Challenges in the Use of Government Debt Issuance Procedures, Techniques and Policies in OECD Markets” by Hans J. Blommestein, OECD: Financial Market Trends, 22. “Uniform-Price Auctions: Evaluation of the Treasury Experience” by Malvey, Archibald and Flynn, Department of the Treasury, 19963. “Uniform-Price Auctions: Update of the Treasury Experience” by Paul Malvey and Christine Archibald, Office of Market Finance, Department of the Treasury, October 19984. Milton Friedman 30 Oct 1959 Hearing before the JEC 86th Congress Testimony in Employment, Growth and Price Levels

A
Tool

 Distribute a primary offering of Treasury securities to investors via a syndicate of broker-dealers Appoint a small group of joint-bookrunning managers to interface with the market and assume underwriting lia

securities

— Build an order book of investor demand at a starting price recommended by lead-managing broker-dealers— Tweak pricing range to determine the clearing level for Treasury’s target size— Allocate securities to investors at the market-clearing price

Background Used by other sovereign nations for primary issuance

— Favored generally by countries with lower issuance needs, but also used in certain circumstances by the U

Italy, France, and Germany

— Germany uses syndications for the first ever issuance of a new federal security

 Primary method of new-issue distribution for other securities, including GSE benchmark bullets, investment gra

high yield bonds, and equities

Benefits Increases certainty of execution Enables price discovery and greater transparency for market participants Facilitates a uniform-price clearing mechanism at a price that matches investor demand Provides a competitive incentive for bookrunning managers, through underwriting commissions and status, to 

 Fulfils the edict of “regular and predictable” borrowing, if syndications are announced in the quarterly calendar  Allows a broader distribution of new issues

B Syndications
Considerations Requires a syndicate to be selected by Treasury and compensated for underwriting liability Exposes Treasury to market movements across a multi-hour or multi-day execution window Incorporates syndicate discretion into the investor allocation process

— Participating investors agree to accept the universal price offered by the bookrunning managers— Decision to allocate to a buyer is a made by the syndicate, rather than by the buyer’s marginal price

 Enables market psychology to affect pricing outcome, if investors become “spooked” by a slow book-building p

widening

 Deep existing investor base and highly liquid secondary trading market for Treasury notes enables a smooth a

issuance without a syndicate

 Current primary dealer framework incorporates broker-dealers in the new-issue process without discretion tow

dealers or investors

Additional Considerations Syndication may be an effective distribution tool in the issuance of a new Treasury product, where price discov

certainty will be critical 

 A syndicate structure is likely not additive for the upcoming FRN issuance given it has been well publicized, is 

term and therefore is likely to attract a deep investor base

 In contrast, syndication is more likely to be additive for products where the investor base is less certain and the 

are less clear

— For example, Treasury securities with maturities greater than 30 years, foreign currency-denominated issu

dated FRNs

Syndications (Cont’d)
Tool

 Capture opportunistic windows for issuance and respond quickly to investor demand

— Treasury may regularly post issuance targets, to supplement or complement the existing funding plan— Treasury may also respond to specific investor demand for a new issue (such as an ultra-long duration inst

niche investors) or re-opening

Background

 Mimics a funding strategy employed by other frequent borrowers

— GSEs currently use this funding model for issuance of callable bonds, structured notes, floating-rate notes, — Corporate borrowers, especially financial institutions, will issue in optimal market windows and post opport

levels for structured Medium Term Notes (MTNs) and commercial paper

Benefits

 Retain flexibility in strategy to issue securities in opportunistic windows Respond to specific investor demand for a given product or maturity at an optimal price Use posted funding targets to drive investor participation to a target point on the maturity curve for Treasury to  Receive real-time feedback from investors on price and demand

Considerations

 Increases operational burden on Debt Management Office

— Small issue sizes and new streams of CUSIPs will need technological and operational support— Treasury must monitor issuance targets to avoid creating unintended dislocations between primary and se

 Integration with current issuance strategy may pose challenges

— If used in conjunction with existing auction processes, may impact demand from investors and dealers in a— If used instead of auction processes, may impact perception of Treasury as a “regular and predictable” bor

 Change in target levels could lead to indirect gains or losses for holders of existing securities Lumpy and unpredictable cash flow needs may generate negative carry costs on opportunistic issuance

 Fragments secondary liquidity if issue sizes are small and may cause issue-specific mispricings in periods of m

orphaned secondary market segments like the high coupon callables issued in the 1980s

C Responding to Reverse Inquiries & Window-Driven Issuan
Tool

 A tap is a sale of government securities where the debt management agent believes that there is a dislocation 

by excess demand for a particular issue or sector

— Removes or reduces the dislocation by re-opening an existing issue to increase the outstanding notional— Performed as needed, to correct adverse lending conditions— Announcement and auction actions are taken quickly

 A mini-tender is also a sale of government securities to correct market dislocations

— Announcement is made in advance via the supply calendar

Background Used by 10 out of 29 countries studied by the OECD in 2009 (1)

 The most recent execution of a tap by Treasury was in the re-opening of four issues on October 8 and 9, 2008 

— These taps had tails of 41.1bps, 15bps, 7.1bps, and 7.8bps — Tails may have been a function of the rapid execution as well as financial conditions at the time

Benefits

 Alleviates market dysfunction in times of great stress or systemic failure Reduces market pressure if there is temporary excess demand for an issue or other exceptional circumstance

 Allows lower borrowing costs for Treasury, since rich issues are typically the target securities Enables Treasury to fine-tune their borrowing requirements, in the case of mini-tenders. Treasury can consult t

mini-tender to understand the preferred timing and target issues

 Facilitates smooth management of Treasury’s debt maturity profile (i.e., fill in a long-end gap in the yield curve

D Taps and Mini Tenders

Notes1. “New Challenges in the Use of Government Debt Issuance Procedures, Techniques and Policies in OECD Markets” by Hans J. Blommestein, OECD: Financial Market Trends, 22. “The Introduction of the TMPG Fails Charge for US Treasury Securities” by Garbade, Keane, Logan, Stokes, and Wolgemuth, FRBNY Economic Policy Review, October 2010
Considerations Unpredictable or irregular operations may have negative market implications May adversely affect current holders of the target securities Once implemented, market may come to rely on taps or mini-tenders as a source of liquidity Market requires sufficient time to digest announcements of a tap, in order for the tool to be effective Communication strategy is critical

— Methods will have the most impact if the market has sufficient time to digest an announcement and position — Treasury may provide advanced notice or define a set a parameters that will warrant action

Taps and Mini Tenders (Cont’d)
Tool Allow underwriters to use incremental buying power to maintain an orderly trading market Background Over-allotment option typically serves two potential purposes in an equity or equity-like offering

— If after-market conditions are strong, the issuer or selling shareholders deliver additional shares, increasing 

by 15%

— If after-market conditions are weak, the underwriters buy up to 15% of the base offering in the after-market 

and improve liquidity

 Over-allotment option is not used by investment grade corporations or the GSEs in senior debt offerings

 As applied to Treasury securities, a greenshoe would provide primary dealers with the right to buy incremental 

short period of time after the auction at the same price that the securities clear the auction

Benefits Increases after-market demand

— If new notes trade well after an auction, primary dealers may purchase incremental securities from Treasur

period of time to cover primary dealers’ short positions. 

— If new notes are subject to selling pressure after an auction, primary dealers may purchase incremental se

aftermarket to stabilize performance

 Creates an incentive for primary dealer participation in auction processes Process increases availability of a new issue and facilitates a more healthy repo market for a new issue Over-allotment could alleviate primary dealer auction constraints due to increased direct bidder participationConsiderations Not clear that Treasury has use for excess funds or would benefit from “under-issuing” in order to allow for gre

 Limits visibility for investors into final issue size in the inaugural auctioning of the securities The over-allotment option is only an effective tool in the issuance of a new security, not in a periodic re-openin

 Requires a formula to calibrate primary dealers’ portions of the over-allotment option Presents operational challenges to manage a short position and execute a greenshoe

E Over-Allotment Option (“Greenshoe”)
Section 2: Secondary Market Techniques
Repurchases: Buybacks and Switches

Tool Actively adjust Treasury’s outstanding debt and maturity profile through liability management

— Repurchase outstanding issues in whole or in part (“buybacks”)— Issue new securities to replace repurchased securities (“switches”)

Background Treasury engaged in a repurchase program from March 2000 to April 2002 as a result of the emergence of a fi

— United States swung from a $290 billion deficit in 1993 (4.7% of GDP) to a $236 billion surplus in 2001 (2.4— Treasury’s buyback program ceased as deficits returned by FY 2003— United States has only posted a surplus in 5 of the last 42 fiscal years

 Corporate borrowers engage opportunistically in liability management exercises through tenders, exchanges, a

operations

– Low interest rate environment since 2009 has provided an incentive for investment grade corporate borrow

coupon debt and refinance with lower-cost funding

– Considerations include net present value analysis, accounting implications, and long-term interest rate view

 Fannie Mae and Freddie Mac also have a history of conducting repurchases

— GSEs have engaged in reverse-auction buybacks, tender offers, and exchanges— Repurchased securities include callable bonds, benchmark bullets, floating-rate notes, subordinated debt, 

denominated securities

A
Repurchases: Buybacks and Switches (Cont’d)

Benefits

● May be an effective tool to manage Treasury debt in periods of surplus● Smooth the predictability of new issuance in periods of shrinking deficits or rising surplus

— When cash needs decrease, repurchasing outstanding issues will delay the need to abruptly eliminate a cu

● Prevent an extension of the average maturity of outstanding debt in periods of surplus

— Repurchase long-dated maturities— Redeem shorter-dated maturities without refinancing— Reduce aggregate new issuance

● Increase size and liquidity of new Treasury issuance, using new financing to fund repurchases● Lower Treasury’s interest expense in low interest rate environments by replacing high-coupon debt with lower-

● Buybacks can potentially help Treasury better manage its seasonal cash balances

Considerations Treasury currently effectively adjusts to seasonal cash flows by moderating the supply of bills Reduce liquidity of outstanding issues, where liquidity in off-the-run notes is already vulnerable in periods of m

 Subject to revenues and cyclicality of cash balances, if repurchases are performed for cash management purp

— Treasury may be more active in repurchases during periods of higher tax revenue— Auction sizes could be variable in periods of low revenue

 Face replacement risk, where the coupon on new issuance may be higher than the coupon on the repurchased  Can influence the yield curve as a result of the distribution of purchases Create a potential impact on futures markets, where the cheapest to deliver security may be affected by a redu

Treasury coupons

 Issuance-funded repurchases may contradict Treasury’s objectives as a “regular and predictable” borrower an

the yield curve
Securities Lending Facility / Collateral Swap Facility

Tool A securities lending facility provides a temporary source of securities to the financing market to promote the eff

markets

 A collateral swap facility enables the exchange of high quality assets for posted collateralBackground (1)

 The Federal Reserve Bank of New York (FRBNY) operates a securities lending facility

– Offers Treasury and Agency securities for loan from the System Open Market Account (SOMA) portfolio via 

process

– Security loans are collateralized on an overnight basis with Treasury bills, notes, bonds and inflation-linked 

 Failure by a primary dealer to re-deliver collateral against borrowed securities by the loan maturity date results 

to the general collateral repo rate plus a fail charge

Benefits

 A securities lending facility at Treasury would complement the Fed’s SOMA lending program Market dislocations and fails may be significantly reduced if Treasury implements a separate facility

Considerations

 Legal implications of creating a Treasury facility (1)

– Treasury may likely need new authority to be able to issue securities for the purpose of securities lending – Issuance for this purpose should be considered in the context of the debt ceiling

 Existing FRBNY securities lending facility, which is limited to Treasury-for-Treasury swaps, has proven to be b

point it seems premature to consider an extension of this mechanism for the Treasury Department

Note1. See “References” for further information (slide 21)

B
Appendix
Significant Squeezes in the U.S. Treasury Market

Significant Squeezes Issue Background GC Repo Rate (%) April 1986 9.25% Feb 2016 May refunding, some 

foreign investors did not lend the old issue

6.75 High GC rate made repo failure 

on 9.25 Feb 16 costly

September / October 2001

5-year, 4.625% May 2016 and 10-year, 5%Aug 2011

Significant fails, 9/11 3.5 to 2 Bank of New York had their 

operations in the World Trade Center, so settlements of many trades were negatively impacted

June 2003 On-the-run 10-

year: 3.625%May 2013

Chronic short position in market due to long-term buyers not lending the issue

1.00 Low GC rate made repo failure 

on 3.625% May 2013 not so costly

October 2008 4 issues suffered 

major shortage

Credit crisis: demise of Lehman Brothers and the Reserve Fund breaking the buck

0.02 The ultra low level of GC would 

have normally meant the fails wouldn’t have been so costly,but there was an extreme flightto simplicity as well as quality going on and many dealerswere short

Source:“The Introduction of the TMPG Fails Charge for US Treasury Securities” by Garbade, Keane, Logan, Stokes, and Wolgemuth, FRBNY Economic Policy Review, October 2010 
Appendix: Global Issuance Recap

Global Issuance Recap

Debt Instrument Maturity Auction Type Auction Timeline Syndicated

Taps /Mini-Tenders 

U.K.

Conventional Gilt 2 years – 50 

years

Multiple-price auction Announcement: Tuesday of the 

previous week; Auction: 30-yr issued quarterly, 5-year and 10-year issued1st and 3rd month of the quarter; 

Settlement: 3 business daysafter transaction

Yes: GBP5Bn50-yr doneon 6/2013, (GBP 3.5Bn more in conventional gilts to come for FY 2013)

Tap: Yes, but none since April 1996;Mini-tenders:~GBP 2Bn salesto date

Index-Linked Gilt 5 years – 50 

years

Single-price auction Announcement: Tuesday of the previous week; Auction: Monthly with 

varying maturities; Settlement: 3 business days after transaction

Yes: GBP 12.5Bn planned for FY 2013

Tap: Yes, but none since November 1998; Mini-tenders: ~GBP 750MM sales to date

Other Products Treasury Bills, Double-dated Gilts and Undated Gilts (both not in circulation currently); DMO provides a Post Auction Optio

bidders at all auctions to have the option to acquire up to an additional 10% of the total gilts they were allotted at the aver

auction; Last reverse gilt auction in 2001

Japan

JGB 2 years – 40 

years

Competitive price auction (2-year, 5 year, 10-year,20-year, 30-year); Competitive yield auction / Dutch (40-year)

Announcement: About a week before auction at 10:30AM; Auction: Bidding closes at 12PM, 2-year issuedend-month, 5-year issued mid-month,10-year issued beginning of month, Issuance times of longer-maturity bonds vary; Settlement: 2 – 3 business days following auction

Yes: Not sincethe 1990’s

Not ad-hoc but twotap auctions per month (JPY300Bn in5-year – 15-year and in 15-year – 30-year); Mini-tender: No

Inflation-Indexed Bonds

10 years None specified None specified No Tap: No;

Mini-tender: No

Other Products 5 – 10-yr auctions also issued through non-competitive auctions for smaller bidders; OTC sales system of 2-yr, 5-yr, 10-yr 

for each issue, max value of JPY100 per individual applicant, monthly OTC sales; Also issue Floating Rate Bonds

Germany

Schaetze,Bobl, Bund

Schaetze: 2-year, Bobl: 5-year, Bund:10- and 30-year

Multiple-price auction Announcement: 6 business days prior 

to auction; Auction: Wednesdays at 11:30AM; Settlement: 2 business days following the auction

No Tap: Yes, usually

only off benchmarks; Mini-tender: No

Bobl / EI,Bund / EI

Bobl / EI: 5-year,Bund / EI: 10-year

Multiple-price auction Announcement: Flexible; Auction: 

Wednesdays at 12:00PM

Yes: only for first issuance andfirst reopening

Tap: Yes, more sporadically than Bund / Bobl taps; Mini-tender: No

Other Products Foreign currency bonds, Federal Savings Notes; Bunds are strippable

Source: OECD, National Central Banks, National Debt Management Offices
Appendix: Global Issuance Recap (Cont’d)

Global Issuance Recap (cont’d)

Debt Instrument Maturity Auction Type Auction Timeline Syndicated

Taps /Mini-Tenders 

Italy

CTZ, BTP CTZ: 2-year; 

BTP:3-year – 30-year

Single-price auction

Announcement: 2 business days prior to auction; Auction: 2-year at end of month, 2-year issued mid-month, 5-year and 10-year issued end of month; Settlement: 3 business days following the auction Yes: EUR15Bn 15- yr in January 2013; EUR6Bn 30-yr in May 2013 Tap: Yes, off off-the-runs more regularly; Mini-tender: No 

CCTeu (FRN), BTP€I (Linker)

CCTeu: 5-year,BTP€i: 5-year to30-year

Single-price auction

CCTeu: Announcement: 2 business days prior to auction; Auction: End of most favorable month; Settlement: 2 business days following the auction; Announcement: 2 business days prior to auction; BTP€i: Auction: End of month together with CTZ auction; Settlement: 3 business days following the auction

None in 2012 –2013 but BTP Italia dealthis year (see Other Products section)

Tap: Yes, CCTeu fairly regularly and Linkers more sporadically; Minitender: No

Other Products BTP Italia (Inflation-Linked Bonds): EUR17Bn syndicated deal in 2013; Bonds over 5 years are strippable

France

BTAN, OAT BTAN: 2 years 

–5 years; OAT:7 years to 50 years

Multiple-price auction

Announcement of BTAN and OAT: 4 business days prior to auction; BTAN Auction: 3rd working Thursday of each 

month at 10:50AM; OAT auction: 1st

working Thursday of each month at 10:50AM; Settlement of BTAN and OAT: Tuesday following the auction

Yes: EUR4.5Bn of30-yr OAT done on May 25, 2013 (usually 1 syndication in the long end each year)

Tap: Yes, sporadically, more frequently for30-year bonds than for shorter paper;Mini-tenders: No

OATi, OAT€I (Inflation Linked)

≥ 7 years Multiple-price 

auction

Announcement: 4 business days prior to auction; Auction: 3rd working Thursday of 

month at 11:50AM; Settlement: Tuesday following the auction

Yes: sporadic, EUR3bln of 15yr in 2008

Tap: Yes, sporadically; Minitenders: No

Other Products Floating rate OAT Bonds: TEC 10 OAT (last matured in 2009, none in circulation currently), OATs and BTANs are strippa

Canada

Nominal Bond 2-year to 30-

year

Multiple-price auction

Announcement: Week prior at 3:30PM; Auction: Usually on Wednesday by 12:00PM; Settlement: 2 business days for 2- and 3-year bonds; 3 business days for 5-, 10-, and 30-year bonds

Yes: not since 1991

Tap: No;Mini-tenders: No

Real Return Bond

30-year Single-price 

auction (as scheduled for the 9/5/2013 30-yr auction)

Announcement: Week prior at 3:30PM; Auction: Usually on Wednesday by 12:05PM; Settlement: 3 businessdays after auction 

Yes: sporadic; 30-yr deal in the mid 1990’s

Tap: No;Mini-tenders: No

Other Products Canadian Savings Bonds, Canadian Premium Bonds, Foreign currency funding (syndicated offerings)

Source: OECD, National Central Banks, National Debt Management Offices
References

Securities Lending Facility (Slide 16) – Additional Background Information (1) (2)

 Background (1)

– The FRBNY has been operating a securities lending facility since 1969. The FRBNY’s securities lending program offe

the System Open Market Account or SOMA portfolio. Lending is done on an overnight basis and to prevent overnight severely affected by the supply/demand changes, the security loans are collateralized with Treasury bills, notes, bondsecurities rather than cash. The theoretical supply of a particular issue is limited to 90% of each Treasury and Agency SOMA with a maturity greater than 13 days. If less than 90% of a particular issue is held in the SOMA, then the entire lent. Primary dealers are limited to 25% of this theoretical supply. If a primary dealer fails to deliver collateral against bloan date, cash will be held overnight against the loan without interest and a penalty fee equal to the general collaterain addition to the lending fee and the fail charge. Failure by a primary dealer to re-deliver collateral against borrowed smaturity date will mean a penalty fee equal to the general collateral repo rate plus the fail charge. The fail charge was 

– The fail charge is calculated by: 

(C = fails charge, R = Fed Funds target rate, P = amount of funds due from the non-failing party)

 Legal Issues: 

– A 2006 White Paper by the Office of Debt Management at the Department of the Treasury (2), cites Chapter 31 of Title 

Code that authorizes the Secretary of the Treasury to issue Treasury securities, and authorizes the Secretary to borroexpenditures, and may issue securities for the amounts borrowed, as well as to buy, redeem or refund outstanding seno reference to securities lending. It seems likely that the Treasury would need new authority to be able to issue secusecurities lending. 

– Debt ceiling issues are another matter to consider. If the securities lending facility received collateral trading well abov

from the securities lending facility could be said to be increasing the debt subject to the debt limit. 

Notes1. “The Introduction of the TMPG Fails Charge for US Treasury Securities” by Garbade, Keane, Logan, Stokes, and Wolgemuth, FRBNY Economic Policy Review, October 20102. “Consideration of a Proposed Treasury Securities Lending Facility” Department of the Treasury, Office of Debt Management, May 2006