Treasury Presentation to TB
Office of Debt Manageme

Fiscal Year 2015 Q4 Report
Table of Contents

I. Executive Summary p. II. 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. 

III. Financing

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

IV. Portfolio Metrics

A. Weighted Average Maturity of Marketable Debt Outstanding with Projections p. B. Projected Gross Borrowing p. C. Maturity Profile p. 

V. Demand

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

Executive Summary
Debt Ceiling and Minimum Cash Balance Objectives

• As a result of the debt ceiling, Treasury is currently operating below the $150 billion minimum daily cash balance 

in May 2015. Treasury will rapidly increase net marketable borrowing over the coming quarter in order to reach i

balance objectives. 

• Net marketable borrowing over the next quarter is forecast at $344 billion, with an end-of-December cash balance 

16). 

• Based on the current auction schedule, Treasury is forecast to increase net bill issuance by $147 billion through the 

2015 (page 16).

Sources of Financing in Fiscal Year 2016 

• Demand for Treasury bills is high and is expected to continue to grow through the end of 2016. Treasury believes 

increase the level of Treasury bills outstanding over the coming quarters. Increasing bill issuance will help achievlowest cost of funding over time and will also enhance market functioning and liquidity. 

• If the Federal Reserve continues to reinvest its SOMA portfolio throughout 2016 and coupon sizes remain at curre

projected to be underfunded by $68 billion (Page 20).

• Adjusting the size of coupon auctions may be necessary, depending on the extent to which Treasury intends to in

Treasury bills outstanding. 

Bid-to-Cover Ratios (BTC)

• Bill auctions in late September and October 2015 were characterized by elevated BTC ratios, due to debt ceiling co

offering amounts and strong investor demand. The 10.7x BTC ratio for the September 29 4-week bill auction was t

• BTC ratios for longer-dated coupons have risen in recent months, particularly those with 7-and 30-year maturities 

Investor Class Allotments

• Relative to other auction participants, foreign awards have increased in bills, but have decreased slightly in long c

however, foreign awards are broadly within their multi-year range.

– In nominal terms, foreign bill awards were necessarily smaller as a result of reduced issuance due to debt c

(page 44).

• Investment fund awards continue to increase in long coupons (7-, 10- and 30-year) and TIPS, but have declined in 

2-Month Bill Presentation

• A variety of changes to market structure are expected to lead to an increase in demand for Treasury bills.• The addition of a 2-month bill could allow Treasury to moderate increases in auctions sizes at other maturity poin

for a more effective maturity ladder that potentially reduces the size of future weekly adjustments to bill issuance

• Treasury seeks feedback from the Committee on the settlement and maturity cycle of a 2-month bill, as well as com

considerations, frequency and size of such a security. 

Highlights of Treasury’s November 2015 Quarterly Refunding 

to the Treasury Borrowing Advisory Committee (TBA
Section II:

Fiscal
Source: United States Department of the Treasury 

(60%)(40%)(20%)

0%

20%40%60%80%

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Year-over-Year % Change

Quarterly Tax Receipts

Corporate Taxes Non-Withheld Taxes (incl SECA) Withheld Taxes (incl FIC
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. Source: United States Department of the Treasury 

0

20406080

100120140

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

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

0

200400600800

1,0001,200

HHS

SSA

Defense

Treasury

Agriculture

Labor

VA

Transportation

OPM

Education

$ bn

Eleven Largest Outlays

Oct - Sep FY 2014 Oct - Sep FY 2015
Source: United States Department of the Treasury 

(40)(30)(20)(10)

0

102030

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

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

Q3-14

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

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

0

100200300400500600700800

October

November

December

January

February

March

April

May

June

July

August

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2013 FY2014 FY2015
FY 2015-2017 Deficits and Net Marketable Borrowing Estimates 

Primary 

Dealers1 CBO2 OMB MSR3 CB

FY 2015 Deficit Estimate 466 486 455 48FY 2016 Deficit Estimate 472 455 429 38FY 2017 Deficit Estimate 513 455 436 40FY 2015 Deficit Range 375-595

FY 2016 Deficit Range 375-575FY 2017 Deficit Range 400-696FY 2015 Net Marketable Borrowing Estimate 563 586 631 59

FY 2016 Net Marketable Borrowing Estimate 553 531 563 46FY 2017 Net Marketable Borrowing Estimate 600 531 567 48FY 2015 Net Marketable Borrowing Range 440-794FY 2016 Net Marketable Borrowing Range 410-675FY 2017 Net Marketable Borrowing Range 460-775Estimates as of: Oct-15 Aug-15 Jul-15 Ma

1Based on primary dealer feedback on October 27, 2015. Estimates above are averages. 2Table 1 and 3 of CBO's "An Update to the Budget and Economic Outlook: 2015 to 2025"3Table S-11 of OMB's "Fiscal Year 2016 Mid-Session Review"4Table 1 and 3 of CBO's "An Analysis of the President's 2016 Budget"5Table S-13 of OMB's "Fiscal Year 2016 Budget of the US Government"
(1,600)(1,400)(1,200)(1,000)

(800)(600)(400)(200)

0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

$ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit in $bn (LHS) Surplus/Deficit as a % of GDP (RHS)

Projections are from Table S-1 of OMB's ''Fiscal Year 2016 Mid-Session Review" 

OMB’s Projection
Section III:

Financing
Assumptions for Financing Section (pages 15 to 22)

• Portfolio and SOMA holdings as of 9/30/2015.• SOMA redemptions until and including June 2021. These assumptions are based on Chairm

Bernanke’s June 2013 press conference. 

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

9/30/2015, while using an average of ~$1.3 trillion of Bills outstanding. 

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

as of 9/30/2015. 

• No attempt was made to match future financing needs. 
Sources of Financing in Fiscal Year 2015 Q4

*An end-of-September 2015 cash balance of $199 billion versus a beginning-of-July 2015 cash balance of $254 billion. By keeping t

constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance (37) Security Gross Maturing Net Gro

Net Coupon Issuance 170 4-Week 455 475 (20) 1,84

Subtotal: Net Marketable Borrowing 133 13-Week 302 312 (10) 1,25

26-Week 302 326 (24) 1,29

Ending Cash Balance 199 52-Week 67 75 (8) 317 

Beginning Cash Balance 254 CMBs 75 50 25 105 

Subtotal: Change in Cash Balance (56) Bill Subtotal 1,201 1,238 (37) 4,80

Net Implied Funding for FY 2015 Q4* 188

Security Gross Maturing Net Gro

2-Year FRN 41 0 41 164 

2-Year 78 102 (24) 318 

3-Year 72 96 (24) 295 5-Year 105 111 (6) 420 7-Year 87 0 87 348 

10-Year 66 32 34 265 30-Year 42 4 38 169 

5-Year TIPS 16 0 16 50 

10-Year TIPS 28 21 7 82 30-Year TIPS 0 0 0 23 

Coupon Subtotal 536 366 170 2,13

Total 1,737 1,604 133 6,94

Coupon Issuance 

July - September 2015 July - September 2015 

Bill Issuance 

July - September 2015 
Sources of Financing in Fiscal Year 2016 Q1

*Keeping announced issuance sizes and patterns constant for Nominal Coupons, TIPS, and FRNs as of 9/30/2015.**Assumes an end-of-December 2015 cash balance of $325 billion versus a beginning-of-October 2015 cash balance of $199 billionFinancing Estimates released by the Treasury can be found here: http://www.treasury.gov/resource-center/data-chart-center/qrefunding/Pages/Latest.aspx

Assuming Constant Coupon Issuance Sizes*

Treasury Announced Net Marketable Borrowing** 344

Net Coupon Issuance 197

Implied Increase in Bills 147

Security Gross Maturing Net Gross Maturing 

2-Year FRN 41 0 41 41 0 

2-Year 78 96 (18) 78 96 3-Year 72 96 (24) 72 96 5-Year 105 109 (4) 105 109 

7-Year 87 0 87 87 0 

10-Year 66 23 43 66 23 30-Year 42 6 36 42 6 

5-Year TIPS 16 0 16 16 0 

10-Year TIPS 13 0 13 13 0 30-Year TIPS 7 0 7 7 0 

Coupon Subtotal 527 330 197 527 330 

Total 1,664 1,506 158 1,664 1,506 

October - December 2015

October - December 2015 Fiscal Year-to

Coupon Issuance Coupon Issu
564 568 610 659 683 729 751 781 801 

(400)(200)

0

200400600800

1,000

2016

2017

2018

2019

2020

2021

2022

2023

2024

$bn

OMB's Projection of Borrowing from the Public

Primary Deficit Net Interest Other Debt Held by Public

as % of GDP (RHS)

Debt Held by Public NeFinancial Assets as a % o

OMB’s projections of net borrowing from the public are from Table S-11 of the “Fiscal Year 2016 Mid-Session Review.” Data laberepresent the change in debt held by the public in $ billions. “Other” represents borrowing from the public to provide direct and loans.

$ bn %

Primary Deficit 632 9.0

Net Interest 5,181 74.1

Other 1,181 16.9

Total 6,994

FY2016 - FY2025 Cumulative Total
OMB's economic assumption of the 10-Year Treasury Note rates are from Table 2 of the “Fiscal Year 2016 Mid-Session Review.” 

The forward rates are the implied 10-Year Treasury Note rates on September 30 of that year.

1

1.5

2

2.5

3

3.5

4

4.5

5

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

10-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note

OMB FY 2016 MSR Implied Forward Rates as of 09/30/2015

10-Year Treasury Rate of 2.04% as of 9/30/2015
Treasury’s primary dealer survey estimates can be found on page 9. OMB's projections of net borrowing from the public are from 

the “Fiscal Year 2016 Mid-Session Review.” CBO's estimates of the borrowing from the public are from Table 1 and 3 of “An AnaPresident's 2016 Budget .” See table at the end of this section for details.

0

100200300400500600700800900

1,000

2016

2017

2018

2019

2020

2021

2022

2023

2024

$ bn

Fiscal Year

Projected Net Borrowing Assuming Constant Future Issuan

Projected Net Borrowing CBO's "An Analysis of the President's 201OMB's FY 2016 MSR PD Survey Net Marketable Borrowing Es
Impact of SOMA Actions on Projected Net Borrowing Assuming 

Issuance Remains Constant

Treasury’s primary dealer survey estimates can be found on page 9. OMB's projections of net borrowing from the public are from 

the “Fiscal Year 2016 Mid-Session Review.” CBO's estimates of the borrowing from the public are from Table 1 and 3 of “An AnaPresident's 2016 Budget .” See table at the end of this section for details.

0

100200300400500600700800900

1,000

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Fiscal Year

Without Fed Reinvestments ($ bn)

Projected Net BorrowingCBO's "An Analysis of the President's 2016 Budget"

0

100200300400500600700800900

1,000

2016

2017

2018

2019

2020

2021

Fiscal Year

With Fed Reinvestm

OMB's FY 2016 MSRPD Survey Net Marketable Bor
Additional Funding Gap Assuming No SOMA Roll

(174) (181)

(320)

(376)

(259)

(

(400)(350)(300)(250)(200)(150)(100)

(50)

0

2016

2017

2018

2019

2020

$ bn

Fiscal Year
Historical Net Marketable Borrowing and Projected Net Borro

Assuming Future Issuance Remains Constant, $ billions

*OFP’s FY 2015 Net Marketable Borrowing ProjectionTreasury’s primary dealer survey estimates can be found on page 9. OMB's projections of net borrowing from the public are from 

the “Fiscal Year 2016 Mid-Session Review.” CBO's estimates of the borrowing from the public are from Table 1 and 3 of “An AnaPresident's 2016 Budget .”

Fiscal 

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

Historical/Projected 

Net Borrowing 

Capacity

OMB's FY 2016 MidSession Review CBO's "An Analy

the President's 2

Budget" 

2011 (311) 576 751 88 0 1,104 2012 139 148 738 90 0 1,115 2013 (86) 86 720 111 0 830 

2014 (119) (92) 669 88 123 669 2015 (53) (282) 641 88 164 558 2016 (59) (173) 442 70 41 322 564 469 2017 0 (73) 256 71 (0) 253 568 488 

2018 0 28 238 66 0 332 610 512 2019 0 35 104 68 0 206 659 588 2020 0 (0) 119 42 0 161 683 646 2021 0 15 157 18 0 190 729 735 2022 0 72 231 7 0 309 751 770 2023 0 43 195 7 0 245 781 798 2024 0 2 192 6 (0) 200 801 832 

2025 0 (33) 199 (37) (0) 129 848 865 
Section IV:

Portfolio Metrics
Assumptions for Portfolio Metrics Section (pages 25 to 30) and A

• Portfolio and SOMA holdings as of 9/30/2015.• SOMA redemptions until and including June 2021. These assumptions are based on Chairm

Bernanke’s June 2013 press conference. 

• To match OMB’s projected borrowing from the public for the next 10 years, Nominal Coupo

(2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. 

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

as of 9/30/2015.

• OMB’s estimates of borrowing from the public are Table S-11 of the “Fiscal Year 2016 Mid-S

Review.”
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dem

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.

4045505560657075808590

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Weighted Average Maturity (Months)

Calendar Year

Weighted Average Maturity of Marketable Debt Outstandi

Historical Adjust Nominal Coupons to Match Financing Needs Historical Average from 1980 to 

69.8 months on9/30/2015

58.9 month(Historical from 1980 
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dem

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.

0

500

1,0001,5002,0002,5003,0003,500

2016

2017

2018

2019

2020

2021

2022

2023

2024

$ bn

Projected Gross Borrowing excluding Bills for Fiscal Yea

Maturing in < 1 Year excluding Bills OMB's Projected Net Borrowing
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dem

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

05

10152025

2016

2017

2018

2019

2020

2021

2022

2023

2024

$tr

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dembasic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio composition by original 

and term can be found in the appendix (Page 43).

Recent and Projected Maturity Profile, $ billions

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

2008 2,152 711 280 653 310 499 617 5,222009 2,702 774 663 962 559 643 695 6,992010 2,563 1,141 895 1,273 907 856 853 8,482011 2,620 1,334 980 1,541 1,070 1,053 1,017 9,612012 2,951 1,373 1,104 1,811 1,214 1,108 1,181 10,742013 2,939 1,523 1,242 1,965 1,454 1,136 1,331 11,592014 2,935 1,739 1,319 2,207 1,440 1,113 1,528 12,282015 3,097 1,775 1,335 2,382 1,478 1,121 1,654 12,842016 3,074 1,822 1,565 2,421 1,509 1,189 1,825 13,402017 3,123 2,067 1,530 2,494 1,514 1,258 2,004 13,992018 3,398 2,030 1,589 2,545 1,586 1,317 2,155 14,622019 3,364 2,157 1,676 2,674 1,714 1,394 2,324 15,302020 3,458 2,261 1,649 2,864 1,803 1,408 2,567 16,012021 3,562 2,217 1,886 2,960 1,848 1,464 2,831 16,762022 3,519 2,484 1,924 3,066 1,926 1,489 3,141 17,542023 3,786 2,518 2,003 3,097 1,982 1,516 3,460 18,362024 3,861 2,651 2,019 3,243 2,113 1,542 3,771 19,202025 3,954 2,701 2,077 3,514 2,147 1,575 4,119 20,08
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dem

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

0%

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

100%

2016

2017

2018

2019

2020

2021

2022

2023

2024

Percent Compositioin

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
Recent and Projected Maturity Profile, percent

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dembasic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio composition by original 

and term can be found in the appendix (Page 43).

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

2008 41.2 13.6 5.4 12.5 5.9 9.6 11.8 60.2009 38.6 11.1 9.5 13.7 8.0 9.2 9.9 59.2010 30.2 13.4 10.5 15.0 10.7 10.1 10.0 54.2011 27.2 13.9 10.2 16.0 11.1 10.9 10.6 51.2012 27.5 12.8 10.3 16.9 11.3 10.3 11.0 50.2013 25.4 13.1 10.7 17.0 12.5 9.8 11.5 49.2014 23.9 14.2 10.7 18.0 11.7 9.1 12.4 48.2015 24.1 13.8 10.4 18.5 11.5 8.7 12.9 48.2016 22.9 13.6 11.7 18.1 11.3 8.9 13.6 48.2017 22.3 14.8 10.9 17.8 10.8 9.0 14.3 48.2018 23.2 13.9 10.9 17.4 10.8 9.0 14.7 48.2019 22.0 14.1 10.9 17.5 11.2 9.1 15.2 47.2020 21.6 14.1 10.3 17.9 11.3 8.8 16.0 46.2021 21.2 13.2 11.2 17.7 11.0 8.7 16.9 45.2022 20.1 14.2 11.0 17.5 11.0 8.5 17.9 45.2023 20.6 13.7 10.9 16.9 10.8 8.3 18.8 45.2024 20.1 13.8 10.5 16.9 11.0 8.0 19.6 44.2025 19.7 13.4 10.3 17.5 10.7 7.8 20.5 43.
Section V:

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

constant auction BEI is used as the inflation assumption.

Summary Statistics for Fiscal Year 2015 Q4 Auctions

Security 

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

A

Bill 4-Week 0.029 3.8 430.6 72.3 5.1 22.6 3.3 Bill 13-Week 0.056 3.8 287.8 67.3 7.5 25.2 4.8 Bill 26-Week 0.181 3.8 286.0 53.9 6.0 40.1 4.2 Bill 52-Week 0.389 3.5 66.4 62.3 4.1 33.6 0.4 Bill CMBs 0.055 3.4 75.0 70.4 5.8 23.8 0.0 

Coupon 2-Year 0.684 3.3 77.4 38.0 13.8 48.2 0.4 Coupon 3-Year 1.000 3.2 71.7 39.5 10.0 50.5 0.1 Coupon 5-Year 1.518 2.5 104.8 33.7 5.9 60.3 0.1 Coupon 7-Year 1.921 2.5 87.0 34.1 11.7 54.2 0.0 Coupon 10-Year 2.188 2.6 65.9 31.0 10.4 58.7 0.1 Coupon 30-Year 2.974 2.3 42.0 35.4 8.6 56.0 0.0 

TIPS 5-Year 0.305 2.6 16.0 23.1 0.5 76.4 0.0 TIPS 10-Year 0.542 2.3 28.0 26.5 4.7 68.8 0.0 

FRN 2-Year 0.093 3.5 41.0 58.3 1.5 40.3 0.0 

Total Bills 0.096 3.7 1,145.8 65.8 5.9 28.3 12.7 

Total Coupons 1.604 2.8 448.6 35.2 10.0 54.8 0.9 

Total TIPS 0.456 2.4 43.9 25.3 3.2 71.5 0.1 

Total FRNs 0.093 3.5 41.0 58.3 1.5 40.3 0.0 
1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

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)
2

2.5

3

3.5

4

4.5

5

5.5

6

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs
1

1.5

2

2.5

3

3.5

4

4.5

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

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
1

1.5

2

2.5

3

3.5

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

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
1

1.5

2

2.5

3

3.5

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) 20-Year 30-Year
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.

0%2%4%6%8%

10%12%14%16%18%20%

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

13-week moving average

Percent Awarded in Bill Auctions by Investor Class 

(13-Week Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.

0%5%

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

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

6-month moving average

Percent Awarded in 2-, 3-, and 5-Year Nominal Security 

Auctions by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.

0%5%

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

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

6-month moving average

Percent Awarded in 7-, 10-, 30-Year Nominal Security Aucti

by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. The “Other” category includes categories that are each less than 2%, which include Depository InstitutPension and Insurance.

0%

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

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

6-month moving average

Percent Awarded in TIPS Auctions by Investor Class

(6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International 
Excludes SOMA add-ons. 

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

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction

4/13/26-Week (13-week moving average) 52-Week (6-month moving average)2/3/5 (6-month moving average) 7/10/30 (6-month moving average)TIPS (6-month-moving average)
Excludes SOMA add-ons. 

0%5%

10%15%20%25%30%

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

% of Total Competitive Amount Awarded

Direct Bidder Awards at Auction

4/13/26-Week (13-week moving average) 52-Week (6-month moving average)2/3/5 (6-month moving average) 7/10/30 (6-month moving average)TIPS (6-month-moving average)
Foreign includes both private sector and official institutions.

0

20406080

100120140160

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb15

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

Bills 2,3,5 7,10,30 TIPS FRN
Appendix
This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dem

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

0%

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

100%

2016

2017

2018

2019

2020

2021

2022

2023

2024

End of Fiscal Year

Projected Portfolio Composition by Issuance Type

Bills 2,3,5 7,10,30 TIPS (principal accreted to projection date) FRN
Recent and Projected Portfolio Composition by Issuance Type, 

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to dembasic trajectory of average maturity absent changes to the mix of securities issued by Treasury. 

End of Fiscal 

Year Bills 2-, 3-, 5-Year Nominal Coupons 7-, 10-, 30-Year Nominal Coupons Total Nominal Coupons TIPS (princi

to projec

2008 28.5 34.5 26.9 61.4 102009 28.5 36.2 27.4 63.6 72010 21.1 40.1 31.8 71.9 72011 15.4 41.4 35.9 77.3 72012 15.0 38.4 39.0 77.4 72013 13.2 35.8 43.0 78.7 82014 11.5 33.0 46.0 79.0 82015 10.6 29.4 49.0 78.3 82016 9.7 27.8 51.0 78.9 92017 9.3 27.4 51.7 79.1 92018 8.9 27.3 52.1 79.4 92019 8.5 27.7 52.0 79.8 92020 8.1 28.0 52.2 80.2 92021 7.7 28.1 52.8 80.9 92022 7.4 28.0 53.5 81.5 92023 7.1 28.0 54.1 82.1 92024 6.8 27.9 54.8 82.7 82025 6.5 27.7 55.7 83.4 8
*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 ($bn) 10-Year Equivalent ($bn)*

4-Week 7/9/2015 0.015 3.39 39.7 64.0 6.5 29.5 0.3 0.0 0.34-Week 7/16/2015 0.020 2.98 44.7 77.6 6.7 15.7 0.3 0.0 0.44-Week 7/23/2015 0.035 3.52 39.7 70.8 6.9 22.2 0.3 0.0 0.34-Week 7/30/2015 0.050 3.47 39.3 67.4 7.2 25.4 0.3 0.0 0.34-Week 8/6/2015 0.050 3.62 39.7 73.3 2.7 24.0 0.3 0.0 0.34-Week 8/13/2015 0.050 3.13 39.7 72.4 5.5 22.1 0.3 0.0 0.34-Week 8/20/2015 0.040 3.34 39.7 70.7 3.7 25.6 0.3 0.0 0.34-Week 8/27/2015 0.045 3.27 39.0 69.9 3.7 26.3 0.3 0.0 0.34-Week 9/3/2015 0.000 3.48 34.7 88.1 3.0 8.9 0.3 0.0 0.34-Week 9/10/2015 0.005 3.55 29.7 82.5 2.8 14.7 0.3 0.0 0.34-Week 9/17/2015 0.000 4.07 19.8 73.2 2.6 24.2 0.2 0.0 0.24-Week 9/24/2015 0.000 9.47 14.7 59.3 10.2 30.5 0.3 0.0 0.14-Week 10/1/2015 0.000 10.72 9.8 50.7 6.7 42.7 0.2 0.0 0.1

13-Week 7/9/2015 0.015 3.82 23.5 80.5 9.1 10.4 0.4 0.0 0.713-Week 7/16/2015 0.015 4.07 23.4 62.1 12.6 25.3 0.4 0.0 0.713-Week 7/23/2015 0.030 3.83 23.6 69.9 7.0 23.0 0.4 0.0 0.713-Week 7/30/2015 0.050 3.68 22.7 72.6 9.7 17.7 0.4 0.0 0.713-Week 8/6/2015 0.075 4.09 23.5 62.7 2.7 34.7 0.3 0.0 0.713-Week 8/13/2015 0.125 3.64 23.5 54.7 4.8 40.5 0.4 0.0 0.713-Week 8/20/2015 0.105 3.81 23.5 50.7 11.5 37.9 0.4 0.0 0.713-Week 8/27/2015 0.050 3.49 22.9 86.2 8.3 5.4 0.4 0.0 0.713-Week 9/3/2015 0.095 3.71 23.5 61.5 7.4 31.2 0.3 0.0 0.713-Week 9/10/2015 0.075 3.89 21.6 62.7 8.1 29.2 0.4 0.0 0.613-Week 9/17/2015 0.055 3.84 19.5 74.9 5.8 19.2 0.4 0.0 0.613-Week 9/24/2015 0.005 3.95 19.5 80.2 6.0 13.8 0.4 0.0 0.613-Week 10/1/2015 0.015 3.83 16.8 56.8 3.0 40.3 0.4 0.0 0.526-Week 7/9/2015 0.085 4.03 23.4 46.4 11.0 42.7 0.3 0.0 1.326-Week 7/16/2015 0.100 3.89 23.5 61.7 4.9 33.5 0.4 0.0 1.426-Week 7/23/2015 0.135 3.67 23.3 62.5 2.7 34.8 0.4 0.0 1.426-Week 7/30/2015 0.145 3.99 22.7 48.1 4.4 47.5 0.3 0.0 1.426-Week 8/6/2015 0.165 3.89 23.2 60.5 7.9 31.6 0.3 0.0 1.426-Week 8/13/2015 0.245 3.52 23.0 58.1 3.3 38.6 0.4 0.0 1.426-Week 8/20/2015 0.245 3.69 23.2 46.2 4.6 49.2 0.4 0.0 1.326-Week 8/27/2015 0.200 3.51 23.0 62.8 5.4 31.8 0.3 0.0 1.326-Week 9/3/2015 0.270 3.74 23.5 57.4 6.7 35.9 0.3 0.0 1.326-Week 9/10/2015 0.275 3.82 21.4 42.0 5.5 52.5 0.3 0.0 1.226-Week 9/17/2015 0.260 3.99 19.5 48.2 2.3 49.5 0.3 0.0 1.126-Week 9/24/2015 0.115 3.86 19.4 58.8 14.4 26.8 0.3 0.0 1.126-Week 10/1/2015 0.105 3.64 17.0 44.2 5.7 50.0 0.3 0.0 1.052-Week 7/23/2015 0.330 3.37 24.8 71.4 4.5 24.1 0.1 0.0 2.852-Week 8/20/2015 0.410 3.80 21.9 47.2 1.8 50.9 0.1 0.0 2.452-Week 9/17/2015 0.440 3.17 19.8 67.7 5.9 26.4 0.1 0.0 2.2

CMBs 8/12/2015 0.075 3.44 25.0 61.5 6.0 32.5 0.0 0.0 0.1CMBs 9/1/2015 0.075 3.68 25.0 56.0 7.6 36.4 0.0 0.0 0.1CMBs 9/10/2015 0.015 3.18 25.0 93.7 3.8 2.5 0.0 0.0 0.2

Bills
*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) 

A

2-Year 7/31/2015 0.690 3.42 25.7 27.8 17.9 54.4 0.2 2-Year 8/31/2015 0.663 3.16 25.8 42.6 10.3 47.1 0.1 2-Year 9/30/2015 0.699 3.27 25.9 43.5 13.3 43.2 0.1 3-Year 7/15/2015 0.932 3.16 23.9 38.4 13.9 47.7 0.0 3-Year 8/17/2015 1.013 3.34 23.8 39.0 8.2 52.8 0.1 3-Year 9/15/2015 1.056 3.23 24.0 41.0 8.0 51.0 0.0 5-Year 7/31/2015 1.625 2.58 34.9 27.2 5.3 67.5 0.0 5-Year 8/31/2015 1.463 2.34 35.0 42.5 7.5 50.1 0.0 5-Year 9/30/2015 1.467 2.57 35.0 31.5 5.0 63.5 0.0 7-Year 7/31/2015 2.021 2.47 29.0 38.8 12.0 49.1 0.0 7-Year 8/31/2015 1.930 2.53 29.0 35.0 14.2 50.8 0.0 7-Year 9/30/2015 1.813 2.51 29.0 28.5 8.9 62.6 0.0 

10-Year 7/15/2015 2.225 2.72 21.0 29.8 12.1 58.1 0.0 10-Year 8/17/2015 2.115 2.40 24.0 34.0 5.8 60.1 0.0 10-Year 9/15/2015 2.235 2.70 21.0 28.7 13.8 57.5 0.0 30-Year 7/15/2015 3.084 2.23 13.0 40.8 8.1 51.1 0.0 30-Year 8/17/2015 2.880 2.26 16.0 38.2 9.9 51.9 0.0 30-Year 9/15/2015 2.980 2.54 13.0 26.6 7.4 66.0 0.0 

2-Year FRN 7/31/2015 0.077 3.93 15.0 45.1 1.7 53.3 0.0 2-Year FRN 8/28/2015 0.086 3.50 13.0 56.5 0.0 43.5 0.0 2-Year FRN 9/25/2015 0.120 2.87 13.0 75.3 2.7 22.0 0.0 

Issue Settle Date Stop Out Rate (%)* Bid-to-Cover Ratio* Competitive Awards ($bn) % Primary Dealer* % Direct* % Indirect* Non- Competitive Awards ($bn) 

A

5-Year TIPS 8/31/2015 0.305 2.58 16.0 23.1 0.5 76.4 0.0 

10-Year TIPS 7/31/2015 0.491 2.31 15.0 27.0 8.1 64.8 0.0 10-Year TIPS 9/30/2015 0.600 2.36 13.0 26.0 0.8 73.3 0.0 

Nominal Coupons

TIPS
Office of Debt Manageme

Initial Assessment of Potential 2-Month Treasury Bill Pro

November 3, 2015
Review

2

 May 2015 Quarterly Refunding Statement:

 “Treasury believes that it is prudent to increase the level of Treasury bills outsta

increase in issuance will help to achieve our objective of lowest cost of funding will enhance market functioning and liquidity.”

 May 2015 Minutes of the Treasury Borrowing Advisory Committee (TBAC):

 “The Committee suggested that Treasury focus this additional bill issuance in o

month securities, and study the potential for a two-month bill auction program

 Primary Dealer Auction Size Survey (October 26, 2015): Scope for Increasing Supply

 By focusing additional bill issuance in one- and three-month tenors, auction siz

surpass dealer-recommended maximums - if there are no additions to the curresecurities.

Mean Std.

1-month 51 3.53-month 38 3.86-month 37 3.1

1-year 30 2.2

Maximum auction size that could be 

issued without causing significant 

Tranche yield deviations from fair value ($bil)

Bills
Increasing Demand for Treasury Bills

3

 Elevated demand for high-quality liquid assets is a well-documented phenomena t

before the financial crisis and regulatory response (Stein et al 2011).

 As discussed during the May 2015 TBAC meeting, there is a variety of changes that 

increased, and are expected to further increase, demand for Treasury bills, includin Market participants expect money fund reform to result in a significant realloca

from prime to government-only funds.

 New regulations have increased the costs for banks to fund with “non-operation

deposits. Accordingly, expectations are that at least a portion of these deposits to government-only money market funds (MMFs) as a substitute.

 Bank liquidity rules have encouraged an increased demand for high-quality liqu

(HQLA) and a reduction of shorter-term or less stable funding sources.

 Leverage ratios have also encouraged banks to reduce capital-intensive, low-ret

such as repo (an imperfect Treasury bill substitute).

 Under new derivatives margin requirements being implemented pursuant to D

Treasury bills as collateral have a favorable haircut treatment.

1 Source: May 2015 TBAC Presentation
Money Market Mutual Funds (MMFs)

4

 Market participants expect inflows into government-only MMFs could total upwar

over the coming year. If portfolio allocations were to remain consistent, incrementTreasury bills from MMFs could conceivably rise by $200 billion over the same tim

 MMFs tend to invest predominantly in short-maturity Treasury securities because 

constraints that include: The maximum weighted-average maturity (WAM) permissible for MMF portfo

 Note: In these calculations, the Treasury FRN is deemed to have a remaining 

one day.

 The maximum weighted-average life (WAL) permissible for MMF portfolios is 

 Note: Conversely, the actual maturity date of a Treasury FRN is incorporate

 10 percent of assets must offer daily liquidity, for which Treasury securities qua

percent of assets must offer weekly liquidity.

 Accordingly, expectations are that the majority of this additional demand will be fo

of three months or fewer.
Money Market Mutual Funds (MMFs), cont

5

 From January 2012 through July 2015, 40 percent of government-only MMF Treasu

(excl. FRNs) typically mature within one month, and 76 percent within three month

2 Source: SEC and Department of the Treasury – Office of Financial Research

0%

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

100%

Government-Only MMF Treasury Maturity Profile (Excl. FRNs)

0-1 Month 1-2 Months 2-3 Months 3+ Months
Money Market Mutual Funds (MMFs), cont

6

 Government-only MMFs typically own approximately 20 percent of Treasuries out

less than three months to maturity.3

3 Source: SEC and Department of the Treasury – Office of Financial Research

0%5%

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

Government-Only MMF Treasury Holdings as a Percentage of Outstanding 

(3-Month Moving Average)

0-1 Month 1-2 Months 2-3 Months
Money Market Mutual Funds (MMFs), cont

7

 The weighted-average maturity of government-only MMF Treasury holdings has o

between 60-80 days in recent years, roughly equidistant between a 2- and 3-month 

4 Source: SEC and Department of the Treasury – Office of Financial Research

0

20406080

100120

days

Weighted Average Maturity of Government-Only MMF Treasury Holdings

Incl. FRNs Excl. FRNs

1-month maturity

2-month maturity

3-month maturity
Potential Benefits of a 2-Month Bill Maturit

8

 If Treasury were to meet funding gaps over the next three years solely using bills, b

additional supply towards 1- and 3-month tenors could result in rapidly increasing  Within 2-3 years, average bill auction sizes could exceed dealer-recommended m

 This dynamic might affect auction pricing, resulting in sizable variations fro

 Introducing a 2-month tenor would enable Treasury to moderate increases in aucti

maturity points. Additionally, Treasury could more effectively ladder its maturity 2-month tenor, potentially reducing the size of future weekly adjustments to bill iss

5 During FY 2015, the 1-month auction size varied from a high of $50 billion to a low of $10 billion.

$0

$10$20$30$40$50$60$70

1-Month 3-Month 6-Month 1-Year

billions

FY 2015 FY 2016 FY 2017 FY 2018

$0

$10$20$30$40$50$60$70

1-Month 2-Month 3-Month 

billions

FY 2015 FY 2016 FY 2017 

Average Auction Sizes versus Dealer-Recommended Maximums (Dashed Lines)

Assumptions: 1) No SOMA reinvestment; 2) Increased auction sizes are biased 75-25 in favor of securities with tenors of 3-

3) Initial 2-month auction size is set equal to the 3-month.

$0

$10$20$30$40$50$60$70

1-Month 3-Month 6-Month 1-Year

billions

FY 2015 FY 2016 FY 2017 FY 2018

$0

$10$20$30$40$50$60$70

1-Month 2-Month 3-Month 

billions

FY 2015 FY 2016 FY 2017 
Potential Benefits of a 2-Month Bill Maturit

9

 A 2-month bill maturity could generate significant demand from MMFs, given thei

holdings. For example, at eight weeks to maturity, a 2-month tenor would immediately fa

MMFs’ 60-day WAM limit and would fall comfortably within MMFs’ 120-day W

 Could present MMFs with greater opportunity to balance potential yield benefi

to a 1-month bill with lessened effects on WAM as compared to a 3-month bill.

 Similar to Treasury, MMFs could also benefit from the ability to more easily lad

profile, and relatedly more easily manage its redemptions.

$0

$50

$100$150$200$250$300$350$400$450$500

billions

Hypothetical FY 2016 Treasury Bill Maturity Profile*

Without 2-Month Bill With 2-Month Bill

* H

u
Potential Drawback of a 2-Month Bill Matu

10

 When Treasury issued the 2-month CMB in 2010-2011 during the Supplementary F

Program (SFP), auction demand was lackluster in comparison to the 1- and 3-mont This lackluster performance is evidenced by a 2-month rate that typically printe

3-month rate than the 1-month rate, despite a smaller auction size, as well as a hon the primary dealers:

Stop-Out Rate Auction Size Primary Dealer Allocation

1-Month T-Bill 0.126% $28.3bn 57.5%

2-Month CMB 0.142% $25.0bn 67.0%

3-Month T-Bill 0.146% $28.2bn 56.5%

Simple Averages

0.000.020.040.060.080.100.120.140.160.180.20

percent

Auction Stop-Out Rates

1-Month T-Bill 2-Month CMB 3-Month T-Bill
Potential Drawback of a 2-Month Bill Matu

11

 However, there are some important caveats to the aforementioned results - princip

 The 2-month program was not formally introduced as a permanent addition to 

existing suite of securities. Accordingly, investors could not be convinced that were going to be a consistent part of Treasury’s portfolio moving forward. Inst

 The 2-month was issued as part of the Supplementary Financing Program (S

raised cash specifically for use in the Federal Reserve’s lending and liquidity This cash was held in a segregated account at the Federal Reserve and was nTreasury as a means to fund outlays.

 The 2-month was issued as a cash management bill (CMB), and although iss

program was in effect for less than a year.

 Moreover, the 2-month was issued at a time when funding needs were already 

highs. This fact, in conjunction with the aforementioned caveats, may have affepricing.
FHLB 2-Month Discount Note Auction

12

 Results from the FHLB 2-month discount note (DN) auction program reinforce the 

market demand for a 2-month Treasury bill could be robust. The FHLBs typically auction the 2-month DN on a twice-weekly basis alongside 

month DNs.

 On a relative basis, the FHLBs’ 2-month DN auction yield has been roughly 

the 1- and 3-month DN auction yields. In the year ending July 9, 2015, the a

statistics were as follows:6

 Beginning on July 14, 2015, the FHLBs adjusted the maturity profile of their 

auction from nine weeks to eight weeks. Since that time, the yield relationshthose three securities has remained fairly consistent:

6 Source: FHLBanks Office of Finance

Stop-Out Rate Auction Size

1-Month DN 0.049% $1.1bn2-Month DN 0.106% $3.6bn3-Month DN 0.155% $4.9bn

Simple Averages

Stop-Out Rate Auction Size

1-Month DN 0.052% $2.5bn2-Month DN 0.073% $4.1bn3-Month DN 0.087% $4.6bn

Simple Averages
Questions

13

 The introduction of a 2-month maturity would enable Treasury to moderate increa

at its other tenors, lessening the risk of exceeding dealer-recommended maximums Given the projected increases to bill supply, should Treasury consider alternativ

cycles to reduce the amount of securities settling on individual days: for exampMonday, Tuesday-to-Tuesday, Wednesday-to-Wednesday, or Friday-to-Friday?

 Given that Treasury conducts auctions on most business days, totaling upwards of 

annually, where in the current calendar would a 2-month best fit? Considerations  Day of week and time of day, as well as market holidays. Length of time between auction and settlement. Proximity to other Treasury auctions or Federal Reserve operations, given comp

on market resources.

 How frequently should Treasury issue a 2-month (weekly, bi-weekly, monthly, etc At its introduction, how large of a 2-month bill program would be advisable? To what extent might the 2-month cannibalize existing demand for 1- and 3-month 
Committee Discussion

14
1

Treasury Borrowing 

Advisory Committee Meeting

November 3, 2015
2

TBAC Charge

As prudent debt managers, Treasury regularly considers ways to manage 

its debt portfolio effectively

We would like the Committee’s views on the practicality and potential 

considerations of applying an Asset-Liability Management framework to 

Treasury’s debt issuance strategy 

What approaches could Treasury consider to minimize cost and optimize 

the composition of net new issuance to finance various assets and 

liabilities, such as student loans or entitlement benefits?
3

Executive Summary

 Asset Liability Management (“ALM”) is an application of Enterprise Risk Management that utilizes 

simplifying assumptions to identify, manage and measure risks in the context of sound financial 

management principles

 Sovereign governments present unique ALM challenges given balance sheet components that 

are more difficult to model, including non-financial assets and contingent assets and liabilities

 A holistic use of ALM is unworkable for the U.S. because of the size and complexity of the 

balance sheet and the economy

 Decisions of whether and how to proceed with a broad application of ALM should be informed by 

the extent to which the U.S. is exposed to rollover risk

 The student loan portfolio lends itself to an ALM framework and provides some practical insight 

into the relevance of ALM to the Treasury

ALM
4

What is Enterprise Risk Management?

 Enterprise Risk Management (ERM) is a framework where risks are identified, 

monitored and managed subject to an entity’s risk appetite to provide for the 

achievement of its objectives

 Risks include interest rate risk, credit risk, currency risk, operational risk, 

reputational risk and many others

 Identification of risks informs the decision to monitor or mitigate their potential 

impacts, which depends on the entity’s risk appetite as well as market conditions

 ERM can preserve or enhance enterprise valuation by providing a framework to 

assess risk and return trade-offs, including the cost of any desired risk 

reduction

ALM
5

What is Asset Liability Management?

ALM is a practical application of ERM for entities that want to reduce unnecessary 

balance sheet sensitivity to any set of variables

From Society of Actuaries: 

 ALM is the practice of managing a business so that decisions and actions taken 

with respect to assets and liabilities are coordinated

 ALM can be defined as the ongoing process of formulating, implementing, 

monitoring and revising strategies related to assets and liabilities to achieve an 

organization's financial objectives given its risk tolerances and other 

constraints

 ALM is relevant to, and critical for, the sound management of the finances of 

any organization that invests to meet its future cash flow needs and 

capital requirements

ALM
6

Sovereign

Financial 

Institution

Individual 

Investor

Level of Uncertainty

Level of Complexity

How Is ALM Implemented? 

Theoretical considerations are 

similar...

...but practical applications are very 

different

Capital 

/ 

Surplus

Assets

Liabilities

Net 

Income / 

Expense

Capital 

Appreciation

Capital 

Preservation

ALM
7

What Risks Can ALM Address?

Risk Consideration for Corporation Consideration for Sovereign

Interest Rate Duration and cash flow mismatches can 

lead to the need to increase liability 

reserves, reducing the company’s equity 

position

Minimizing long-run financial costs related 

to government debt

Liquidity & 

Rollover

Appropriate levels of liquid assets relative 

to short-term liabilities or products with 

demand deposit features ensures 

avoidance of a “run on the bank”

Maintaining a liquid local currency maturity 

curve allows for balancing rollover risk and 

funding costs

Capital 

Sufficiency

Reduces equity volatility at regulated 

entities, allowing for more timely and 

consistent return of profits to equity 

investors

Sovereign net worth is improved by 

managing debt issuance to minimize both 

cost and debt servicing volatility on behalf 

of taxpayers

Inter-temporal 

Consumption

Trade-offs

Framework creates a roadmap to achieve 

financial objectives with the risk 

constraints

Managing intergenerational risk includes 

analyzing the impact of financing current 

consumption with long-term debt, which 

may be positive for current taxpayers but 

could negatively impact future generations

ALM
8

How Can Debt Issuance Choices Address 

Sovereign Risks?

Debt Issuance Characteristics Benefit

Nominal vs. inflation-protected bonds Better match expenditures with costs and 

hedge inflation risk

Maturity of debt instruments issued Manage and balance current vs. future 

interest costs

Currency of debt issuance

(local vs. foreign currency)

Match the currency of expected flows 

Transparency/communication with credit 

rating agencies

Manage the trade-off of debt rollover risk vs. 

higher cost certainty to maintain its credit 

rating

ALM
9

Balance Sheet Complexity Makes 

ALM Challenging for Sovereigns

The use of ALM to inform the management of sovereign balance sheet risk is more 

complex than other financial institutions for several reasons:

 Assets include non-financial assets such as land, as well as broad taxing powers

 Liabilities must include contingent liabilities such as entitlement programs and credit 

guarantees

 Balance sheet is carried at book value and/or replacement cost, rather than market as 

preferred by an ALM framework

The application of ALM to a sovereign is therefore more conceptual than quantitative

 Conceptual sovereign balance sheet could contain:

 Assets:

► Present value of future tax revenues

► Inventories, property, plant & equipment, 

infrastructure assets

► Non-financial assets (e.g. land)

► Cash, monetary assets, debt & equity securities

 Liabilities:

► Present value of future government expenditures

► Loan and insurance guarantees, environmental 

liabilities

► Federal employee and veteran benefits payable

► Federal debt

 Net Worth:

► Difference between current and future assets and liabilities

ALM
10

Interdependent Policymaking by Independent 

Entities Is a Complicating Factor in the U.S.

Independent fiscal, monetary and debt management 

policymakers decentralize balance sheet 

management and require coordination

This independence enhances policy credibility and 

improves implementation

 Debt Management and Monetary Policy

► Issuance choices between fixed/floating and 

nominal/indexed debt is informed by the central 

bank’s price stability mandate

► Lack of policy independence could raise concerns 

regarding debt monetization

► At the zero interest rate bound, quantitative easing 

in the form of debt buybacks may run counter to 

the desire to lengthen the debt maturity profile

 Debt Management and Fiscal Policy

► Fiscal policymakers and government debt 

managers share common interest in sustainable 

debt strategy

► Coordination is required in preparing government 

budget and fiscal projections

► Independence is necessitated by the fact that fiscal 

excesses could temporarily be masked by a high 

risk short-term financing scheme

Debt 

Management

Fiscal 

Policy

Monetary 

Policy

ALM
11

What Makes the U.S. 

Unique Among Sovereigns?

A comprehensive sovereign ALM solution for the U.S. is more complex than 

for other sovereigns:

 Unparalleled depth and breadth of Treasury market and role as a “flight to 

quality” instrument

 Interdependent policymaking structure limits direct Treasury control

 Size and complexity of the U.S. balance sheet 

 USD is the global reserve currency; therefore the U.S. holds limited foreign 

currency reserves

While ALM principles can mitigate rollover risk, the considerable debate over 

the existence of that risk for the U.S. must inform any decision of whether 

and how to proceed with a broad application of ALM

 Negative T-bill yields demonstrate strong demand for short-term Treasuries 

despite elements of theoretical rollover risk

ALM
12

Application of ALM Framework to 

Student Loans

Student 

Loans
13

$503

$232

$179

$249

Repayment, Current Repayment, Delinquent / Default

In School / Grace Deferment / Forbearance

Why Consider ALM for Student Loans?

 The portfolio, at $1.2 trillion today 

and growing by $90 billion 

annually, is a large enough asset to 

affect the Treasury debt financing 

decision

 Characteristics of outstanding 

loans and repayment history are 

observable and can be tracked and 

modelled

 Student loans are subject to 

measurable and potentially 

hedgeable market risks

Source: Department of Education and presenter’s calculations 

to combine FFEL and Direct Loan portfolios

Student Loan Portfolio Status

($ Billions)

Student 

Loans
14

What Risks Might ALM Address?

Risk Description

Interest Rate Present value of fixed rate student loans, if not financed by 

matching liabilities, is exposed to changes in interest rates

Cash Flow 

Timing

Current and projected cash flows are affected by idiosyncratic

factors including prepayments, forbearance/deferment and 

income-based payment programs

Credit Defaults and loss-given-default are impacted by cyclical 

economic factors, policy outcomes, potential for adverse 

selection and other borrower-specific risks

Student 

Loans
15

Student Loan Portfolio Characteristics

 Highly complex prepayment optionality 

► Within repayment status, borrowers can prepay, 

remain current, or fall into delinquency/default.

► Borrowers can move in/out of repayment and from 

in-school, repayment, deferment and forbearance 

status

► Repayment formulas often take borrower income 

as an input when determining repayment 

requirements

 Based on origination cohort data and the growth of 

the portfolio the tenor of the portfolio is estimated to 

have:

► 76 month WALA

► 101 month WAM (vs. 70 month WAM of Treasury 

debt)

 Borrowers struggle to remain current despite flexibility 

afforded them

 Limited publicly available data complicates analysis

Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax

Student Loan Repayment Status in 2014

2009 Cohort: Troubled Borrowers by SchoolLeaving Balance (% as of 2014:Q4)

Source: Bank of New York Consumer Credit Panel/Equifax

Student 

Loans

In Repayment: 

Balance 

Delinquent

17%

In Repayment: 

Balance Not 

Delinquent

37%

Current:

Balance the 

Same

13%

Current:

Balance Up

33%
16

Interest Rate and Cash Flow 

Timing Risk Can Be Hedged

 Initial interest rate hedging decision is relatively straightforward

► Projected cash flows can be “matched” to a subset of regular Treasury issuance

 Ongoing cash flow hedging is more challenging and less precise 

► Actual cash flows will differ from projections due to borrower behavior and policy 

changes 

► Any current or anticipated deviation from projected cash flows would require an 

adjustment of the matched liabilities

Source: Investor reports, Nomura

Prepayment Rate by Cohort Year

0

2

4

6

8

10

12

14

Aug-05 Aug-07 Aug-09 Aug-11 Aug-13 Aug-15

CPR %

2002 2003 2004 2005 2006 2007 2010 2011 2012 2013 2014 2015

Student 

Loans
17

Would Matched Issuance Be Predictable? 

 The size and variability of required issuance should not undermine the regularity and 

predictability of the Treasury debt calendar

► A 2% CPR prepayment decrease for the portfolio’s life would extend duration by $16.5 

billion 10-year Treasury equivalents or less than 1 month of 10-year issuance

► Cash flow forecast changes are likely to be gradual and impact multiple points on the 

Treasury curve, thereby spreading out any effect on issuance

 Transparent disclosure of the matched asset and liability portfolio and relevant debt 

management policy would enhance the predictability of Treasury issuance

Source: Presenter’s Calculations

Change in Dollar-Duration for a 2% Prepayment Decrease in CPR

1. Duration at 7% CPR 7.905

2. Duration at 5% CPR 8.038

3. Change in Duration = (2) - (1) 0.133

4. Size of Student Loan Portfolio ($billion) $1,100.00

5. Change in Dollar-Duration of Student Loan Portfolio = (3) x (4) $146.30 

6. Size of a 10-Year U.S. Treasury Portfolio with Same Dollar-Duration = (5) / (6) ($billion) $16.53 

Student 

Loans
18

0%

1%

2%

3%

4%

5%

6%

7%

 -

 1.0

 2.0

 3.0

 4.0

 5.0

 6.0

10-year rate (RHS) 2002 CDR (LHS)

What Form Could Matched Issuance Take?

Source: Bloomberg, Investor reports, Nomura

Funding 

Method Description Comments

Matched 

Treasury 

Portfolio

Issuance of Treasury debt at different 

maturities in response to cash flow 

assumption changes would deliver a

durable asset-liability match.

To the extent that borrower and policy behavior is uncorrelated with 

interest rate changes, this strategy has no expected cost; 

segregation of matched vs strategic liability portfolios has been 

used with success by other sovereigns within an ALM framework.

Default Rate by Cohort Year 2002 cohort default rate vs. 10-year Treasury yield

 Given that student loan cash flow variability is not strongly correlated with interest rates, 

Treasury debt issuance with embedded optionality (e.g. callables/putables) would not produce 

an efficient match

 A better approach would be to create a matched Treasury portfolio to balance against the 

current cash flow profile of the student loans and reassess on an ongoing basis

0%

2%

4%

6%

8%

10%

12%

Aug-05 Aug-07 Aug-09 Aug-11 Aug-13 Aug-15

CDR %

2002 CDR (LHS) 2003 2004

2005 2006 2007

2010 2011 2012

2013 2014 2015

Student 

Loans
19

Another Choice: Student Loan Pass-throughs

Funding Method Description Comments

Pass-throughs Pass-through issuance similar to the Agency MBS market 

could completely hedge interest rate and cash flow timing 

risk, while retaining credit risk on the sovereign balance 

sheet

Investors’ appetite for such bonds would depend on 

factors including the size and regularity of issuance, 

explicit credit guarantee, and convexity risk to the extent 

prepayments correlate with changes in market interest 

rates

Program Cost Estimate: GNMA 30-year Option 

Adjusted Spread Comments

■ GNMA 30-year OAS has averaged 0.36% since 2012 

■ Total outstanding GNMA MBS amount at $1.39tn is similar to the 

federal student loan portfolio but is tightly linked to the much 

larger conventional MBS market

■ Gross spread of student loan pass-through would be similar to 

OAS if the correlation between prepayments and rates is small

■ The varying coupons of the programs would require different 

tranches, diminishing the benefit of liquidity

■ The market’s desire for par priced securities would require 

Treasury to hold Interest only strips, adding complexity to 

Treasury’s balance sheet

■ The market charges a premium for cash flow uncertainty, 

increasing the cost. Treasury would be better off absorbing the cost 

of optionality and matching changes in cash flows via adjusting 

auction size.

Source: Barclays Index Data

G2SF CC Treasury OAS G2SF CC Treasury ZV Spread

-60

-40

-20

0

20

40

60

80

100

120

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

0

20

40

60

80

100

120

140

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

Student 

Loans
20

0%

5%

10%

15%

20%

25%

0 36 72 108 144

Cumulative Default (%)

Deal Age

2002 2003 2004 2005 2006 2007

2010 2011 2012 2013 2014 2015

Credit Risk Can, But Should Not, Be Hedged

 Uncertainty surrounding student loan credit loss is high

 As expected, the cost of hedging credit risk is also high

► Buyers of student loan credit risk would require compensation for expected defaults, 

default correlation with other market risks, and the asset’s lower credit ratings and 

inferior liquidity compared to U.S. Treasuries

 Selling credit risk in a secondary market would conflict with the student loan program’s 

policy objectives

 Cost of hedging credit risk in the market can be approximated by the difference between 

FCRA and fair-value accounting for the student loan subsidy

► This yields an estimate of $279 billion over 10 years, excluding expected credit losses

Cumulative Default Rate by Cohort Year

Source: Bloomberg, Investor reports, Nomura

Student 

Loans
21

Summary Recommendations

 Application of ALM to the student loan portfolio is a practical first step towards 

any broader potential applications of ALM to the U.S. balance sheet

 Liabilities that fund the student loan portfolio can be segregated from general 

Treasury liabilities and actively managed to hedge interest rate risk and cash flow 

mismatches as they develop

 Segregating would make liability management consequences of student loan 

policy clear and transparent, informing policymakers of the cost to tax payers of 

cash flow modifications

 Cash flow volatility has no reliable correlation with interest rates, thus 

management of the matched Treasury portfolio is expected to deliver most of the 

possible ALM benefit at minimal cost

 Liabilities issued to hedge the student loan portfolio would have a longer WAM 

than the current Treasury average

 Credit risk hedging is cost prohibitive and counterproductive to the program’s 

policy objectives

Student 

Loans
22

ALM for U.S.

Conclusion & Questions
23

References

Blommestein, H.J. “Sound Practice in Government Debt Management”. World Bank Publications. 2004.

George J. Hall and Thomas J. Sargent. Interest Rate Risk and Other Determinants of Post-WWII U.S. 

Government Debt/GDP Dynamics. American Economic Journal: Macroeconomics. 3 (3): 192-214, 

September 2011.

Greenwood, Robin, Samuel G. Hanson, Joshua S. Rudolph, and Lawrence Summers, 2014. “Government 

Debt Management at the Zero Lower Bound.” Hutchins Center Working Paper No. 5.

Historical Tables, Budget of the United States Government, Fiscal Year 2014. 

Historical Tables, Budget of the United States Government, Fiscal Year 2016. 

The 2015 Long-Term Budget Outlook. Congress of the United States Congressional Budget Office.

Togo, Eriko. “Coordinating Public Debt Management with Fiscal and Monetary Policies: An Analytical 

Framework”. World Bank Publications. 2007.

Koc, “Sovereign Asset and Liability Management Framework for DMOs: What Do Country Experiences 

Suggest?”, January 2014, United Nations Conference on Trade and Development

Federal Reserve Bank of New York Staff Reports, “Pricing the Term Structure with Linear Regressions” 

http://www.newyorkfed.org/research/staff_reports/sr340.pdf

Treasury rates http://www.treasury.gov/resource-center/data-chart-center/interestrates/Pages/TextView.aspx?data=realyield
24

References

College Board Trends in Student Aid, https://securemedia.collegeboard.org/digitalServices/misc/trends/2014-trends-student-aid-report-final.pdf

U.S. Department of Education, Federal Student Loan Portfolio data, 

https://studentaid.ed.gov/sa/about/data-center/student/portfolio

FRBNY Consumer Credit Panel / Equifax, http://www.newyorkfed.org/microeconomics/ccp.html

Congressional Budget Office:

 Fair Value Estimates: https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45383-

FairValue.pdf

 Baseline Projections for the Student Loan Program: 

https://www.cbo.gov/sites/default/files/cbofiles/attachments/44198-2015-03-StudentLoan.pdf

 Updated Budget Projections 2015-2025 

http://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-Updated_Budget_Projections.pdf

Nomura Securitized Products Weekly, 9/25/15

Citi Research Consumer ABS Weekly, 9/17/15

Barclays Index data, accessed 10/2/2015