Treasury Borrowing Advisory 

Quarterly Refunding 

February 3, 2004
Sensitivity of Financing Needs to EconWe showed some of the financing risk associated wpotential legislation at the last Committee meeting. show the Committee slides on the uncertainty of our due to macroeconomic variables including real GDPinterest rates. Given this sensitivity and the central borrowing needs, we would like the Committee’s adTreasury’s financing calendar provides sufficient fle
Treasury’s Projected 

Financing Requirements
 Treasury Financing Requirements

($ Billions)

 (Projected) (Actuals) 

Deficit Funding (Def + / Surplus -) 140 129 

Means of Financing

Change in Cash Balance 0 2 Compensating Balances 7 7 Net Non-Marketable Financing 5 1 Net Marketable Financing 117 113 Other** 10 6 

Net Marketable Financing 117 113 

Bills 11Nominal Notes 106TIPS 9Bonds -12

Notes:Starting Cash Balance 35 35 Ending Cash Balance 35 33 

* By December 31, 2003 Compensating Balances were replaced with Depositary Compensation Securities, which ha** Includes direct loan activity, changes in accrued interest and checks outstanding and minor miscellaneous transacNote: Totals may not add due to rounding

 October - December 2003 
Financing Residuals Given Current Issuance C

Assumes current coupon issuance pattern and issuance amount-- Bill issuanc

maintain outstanding FY $ amounts nearly equal to September 30, 2003 

-250-150

-50

50

150250350450550650

2004 2005 2006 2007 

Fiscal Year

$ billions

FY05 OMB Budget Deficit Forecast

Deficits plus Avg. Absolute Error

Deficits minus Avg. Absolute Error

Bars Indicate Estimated Additional Financing Required In Given Year For Different Deficit Outcomes
Economic Risks 

of Fiscal Outlook
Real GDP Growth, Inflation, and Interest 

Average Absolute Forecast Errors From FY 199

Source: Historical and Current OMB Budgets

0.00.20.40.60.81.01.21.41.61.82.0

Current yr 1-yr out 2-yrs out 3-yrs out 4-y

Percent 

Real GDP Growth Forecast Errors

Inflation Forecast Errors

3-month Rate Forecast Errors
Expected Changes in Annual Defici

Real GDP Growth is 1% Lower Than Pr

Source: FY 2005 OMB Budget, Analytical Perspecti

$12.2

$28.3 $31.6 $34.6 $3

$9.3

$32.6

$62.5

$96.0

0

20406080

100120140160180200

2004 2005 2006 2007 

$ Billions 

GDP Growth 1% Lower in 2004GDP Growth 1% Lower in Every Year '04 - '09

* A 1% shock just in 2004 also assumes unemployment is 0.5% in 2005. For a sustained shock over 200

to be unchanged. 

OMB's Forecast for Real GDP Growth

(righthand scale)

Deficits Increasing
Expected Changes in Annual Deficit

Inflation and Interest Rates are 1% Higher tha

 Source: FY 2005 OMB Budget, Analytical Perspectiv

-$6.7

-$20.2

-$48.3

-$64.

$7.6

$20.7

$29.7

-$34.5

$36.5

-100

-80-60-40-20

0

204060

2004 2005 2006 2007 2

$ Billions 

Inflation Interest Rates

DeficitsDecreasingDeficitsIncreasing

* The 1% increase is sustained from 2004 to 2009. That is, each year's forecast is 1% higher than current
Treasury Inflation-Protected Secu

We believe our current issuance calendar can meet projected financing needs. We are also committed tthe TIPS market. We would like the Committee’s advcriteria to use to assess our overall portfolio compomind our need to balance short and long term issuaboth nominal and TIPS issuance.
Composition of Treasury’s D
* Assumes current coupon auction sizes remain constant. Annual issuance composed of coupquarters plus bills outstanding at the end of the period.

Percentage Breakdown of Annual Issuan

0%

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

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 

BILLS 2-3 YR NOTES 4-7 YR NOTES 10 YR NOTES 
Distribution of Treasury's Marketable 

0%5%

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

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 200

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

* Assumes current coupon auction sizes remain constant. 
A Hypothetical Issuance Distributio

and the Ultimate Portfolio Composition Ac

0%

10%20%30%40%50%60%

bills 2-year 3-year 5-year 10-ye

* Assumes constant net nominal borrowing needs.
Benefits and Characteristics of 
Distribution of Competitive Auction Awards of 10-Ye

10-Year Inflation-Indexed Notes 

January 2003, July 2003, & October 2003

Investment 

Funds, 31%

Primary 

Dealers, 51%

Foreign & 

International, 

11%

Financial Insts., 

1%

Other, 6%

10-Year 

September 2003, N

Financial I

2%

Foreign & 

International, 

12%

Investment 

Funds, 15%
*TIPS allocation started from 1998-2004. Includes both separate TIPS portfolios and allocation

** Just a Sample. Does not represent all state and local pension funds.

Sample of State and Local Governmen

Pension Fund Investment in TIPS*

0

750

1,5002,2503,0003,7504,5005,2506,000

Nov-98 Mar-00 Jul-01 Dec-02 

Date of actual/expected first TIPS investme

Amount invested

($ millions)

Idaho

Kansas

Missouri

Indiana

Kentucky

Massachusetts

Missouri Public Schools

Conn.

Ohi

Ne

Florida

New York State

Illinois Florida 
*Just a sample. Does not represent all state and local government pension funds.

Sample of Target Allocations 

by State and Local Pension Funds to 

(% of total assets)

0%2%4%6%8%

10%12%

4/19/01 7/28/01 11/5/01 2/13/02 5/24/02 9/1/02 12/10/02 3/20/0

most recent allocation data

percent

average allocation = 4.3%
Sensitivity of the Real Value of 

10-Year Debt Liabilities to Changes in In

-25%-20%-15%-10%

-5%

0%5%

10%15%20%25%30%

-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 

Change in Annual Inflation

% Change in Real Value of Debt Liabilities

0% 25% 50% 75% 

Percentage of 10-Year Debt in TIPS

* Assumptions for graph include 10-yr nominal coupon of 4.5%, 10-yr TIPS coupon of 2%, and initial exp

TIPS reduce the pvariability of the reTreasury's debt lia
Hypothetical Nominal Payments

$Dollars Per Initial $100 Par Amount 

0

10203040506070

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

year

Nominal5-year TIPS10-year TIPS20-year TIPS

*Assuming constant 5% nominal coupon, constant 2.5% TIPS coupon, and 2.5% inflation. Graph at maturity.
The November refunding calendar is complicated bmarket-moving events and Veterans Day. We woulCommittee’s advice on the scheduling of auctions of this year.

Changes to Auction Calend
Calendar Options for November 200

Option 1:Keep announcement the same but auction 3y on Monday, 5y on Tuesday, and the 10y on Friday

Monday Tuesday Wednesday Thursday 

1234

Election day/TBAC ANNOUNCEMENT 

8 9 10 11 

AUCTION 3-YEAR NOTE 3/ AUCTION 5-YEAR NOTE 3/ FOMC Holiday 

Option 2:Keep announcement the same but auction 3y on Friday, 5y on Monday, and 10y on Tuesday

Monday Tuesday Wednesday Thursday 

1234

Election day/TBAC ANNOUNCEMENT 

8 9 10 11 

AUCTION 5-YEAR NOTE 3/ AUCTION 10-YEAR NOTE 3/ FOMC Holiday

Option 3:Keep announcement the same but auction 3y on Monday, 5y on Tuesday, and 10y on Wednesday a

Monday Tuesday Wednesday Thursday 

1234

Election day/TBAC ANNOUNCEMENT 

8 9 10 11 

FOMC

AUCTION 3-YEAR NOTE 3/ AUCTION 5-YEAR NOTE 3/ AUCTION 10-YEAR NOTE 3/ Holiday

3/ Settles Nov 15.