Treasury Presentation to TBAC
Office of Debt Management

Fiscal Year 2018 Q3 Report
Table of Contents

2

I. Executive Summary p. 4

II. Fiscal

A. Quarterly Tax Receipts p. 6

B. Monthly Receipt Levels p. 7

C. Largest Outlays p. 8

D. Treasury Net Nonmarketable Borrowing p. 9

E. Cumulative Budget Deficits p. 10

F. Deficit and Borrowing Estimates p. 11

G. Budget Surplus/Deficit p. 12

III. Financing

A. Sources of Financing p. 15

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

C. Interest Rate Assumptions p. 18

D. Projected Net Marketable Borrowing Assuming Future Issuance Remains Constant p. 19

IV. Portfolio Metrics

A. Historical Weighted Average Maturity of Marketable Debt Outstanding p. 22

B. Bills Outstanding as a Percent of Portfolio P. 23

C. Maturity Profile p. 24

V. Demand

A. Summary Statistics p. 27

B. Bid-to-Cover Ratios p. 28

C. Investor Class Awards at Auction p. 33

D. Primary Dealer Awards at Auction p. 37

E. Direct Bidder Awards at Auction p. 38

F. Foreign Awards at Auction p. 39
Section I:

Executive Summary

3
Receipts and Outlays

• As the end of June, fiscal‐year‐to‐date receipts were up $33 billion (1%). Adjusted Non‐Withheld Income and SECA taxes were up $78 billion 

(16%), most of which occurred during April when strong final payments were made for 2017 liabilities. Adjusted Withheld Income and FICA 

taxes were up $33 billion (2%), reflecting growth in both employment and wages. These increases were partially offset by lower gross 

corporate taxes $51 billion (20%), reflecting the corporate tax rate reduction and the expanded ability to immediately deduct the full value of 

equipment purchases. 

• After calendar adjustments, fiscal-year-to-date outlays were $123 billion (4%) higher than the comparable period last year. Department of 

Treasury outlays were $57 billion (12%) higher due primarily to increased interest on the public debt $38 billion (10%) and lower overall 

receipts from the GSEs. 

Projected Net Marketable Borrowing (FY2018) 

• Based on the Quarterly Borrowing Estimate, Treasury’s Office of Fiscal Projections (OFP) currently estimates a net privately-held marketable 

borrowing need of $329 billion for Q4 FY 2018, with an end-of-September cash balance of $350 billion. For Q1 FY 2019, the net privately-held 

marketable borrowing need is projected to be $440 billion, with an end-of-December cash balance of $390 billion. OFP’s FY 2018 projection for 

net privately-held marketable borrowing is $1,172 billion. Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of 

Treasury securities held in the Federal Reserve’s System Open Market Account (SOMA), but includes financing required due to SOMA 

redemptions. 

• Other agencies’ forecasts do not include the concept of privately-held marketable borrowing when discussing financing requirements, but 

rather net marketable borrowing. OFP’s net marketable borrowing estimate is $1,016 billion, OMB’s estimate is $1,127 billion, and CBO’s is 

$1,011 billion.

Projected Net Marketable Borrowing (FY2019)

• Recent deficit estimates contained in OMB’s “Mid-Session-Review, Fiscal Year 2019” (July 2018) in conjunction with SOMA redemptions 

suggest that Treasury auction sizes will need to rise over the next few years. CBO’s updated budget projections are not yet available. 

Demand for Treasury Securities

• Bid-to-cover ratios for all products were largely stable over the last quarter.

• Foreign demand remained steady.

Highlights of Treasury’s August 2018 Quarterly Refunding Presentation

to the Treasury Borrowing Advisory Committee (TBAC)

4
Section II:

Fiscal

5
(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

60%

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

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Year-over-Year % Change

Quarterly Tax Receipts

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

6

Source: United States Department of the Treasury 
7

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

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

Source: United States Department of the Treasury 

0

20

40

60

80

100

120

140

160

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Jun-13

Oct-13

Feb-14

Jun-14

Oct-14

Feb-15

Jun-15

Oct-15

Feb-16

Jun-16

Oct-16

Feb-17

Jun-17

Oct-17

Feb-18

Jun-18

$ bn

Monthly Receipt Levels

(12-Month Moving Average)

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

0

100

200

300

400

500

600

700

800

900

HHS

SSA

Treasury

Defense

VA

Agriculture

OPM

Homeland Security

Transportation

Education

Other Defense Civil

Labor

$ bn

Largest Outlays

Oct - Jun FY 2017 Oct - Jun FY 2018
9

Source: United States Department of the Treasury 

(40)

(30)

(20)

(10)

0

10

20

30

Q3-08Q4-08Q1-09Q2-09Q3-09Q4-09Q1-10Q2-10Q3-10Q4-10Q1-11Q2-11Q3-11Q4-11Q1-12Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14Q4-14Q1-15Q2-15Q3-15Q4-15Q1-16Q2-16Q3-16Q4-16Q1-17Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18

$ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

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

0

100

200

300

400

500

600

700

800

October

November

December

January

February

March

April

May

June

July

August

September

$ bn

Cumulative Budget Deficits by Fiscal Year

FY2016 FY2017 FY2018
11

FY 2018-2020 Deficits and Net Marketable Borrowing Estimates in $ billions

Primary Dealers1 OFP2 OMB3 CBO4 OMB5

FY 2018 Deficit Estimate 815 849 792 832

FY 2019 Deficit Estimate 1,010 1,086 955 984

FY 2020 Deficit Estimate 1,100 1,076 866 987

FY 2018 Deficit Range 750-895

FY 2019 Deficit Range 959-1,150

FY 2020 Deficit Range 969-1,250

FY 2018 Privately-Held Net Marketable Borrowing Estimate* 1,098 1,172

FY 2019 Privately-Held Net Marketable Borrowing Estimate 1,292

FY 2020 Privately-Held Net Marketable Borrowing Estimate 1,250

FY 2018 Privately-Held Net Marketable Borrowing Range 899-1,251

FY 2019 Privately-Held Net Marketable Borrowing Range 868-1,480

FY 2020 Privately-Held Net Marketable Borrowing Range 903-1,580

FY 2018 SOMA Redemption Estimate 175 156

FY 2019 SOMA Redemption Estimate 285

FY 2020 SOMA Redemption Estimate 225

FY 2018 Net Marketable Borrowing Estimate 923 1,016 1,127 1,011 1,124

FY 2019 Net Marketable Borrowing Estimate 1,007 1,186 1,049 1,082

FY 2020 Net Marketable Borrowing Estimate 1,025 1,164 924 1,075

Estimates as of: Jul-18 Jul-18 Jul-18 May-18 Feb-18

1Based on primary dealer feedback in July 2018. Estimates above are medians. 

2Treasury's Office of Fiscal Projections (OFP) borrowing estimates announced on July 30, 2018

3Table S-11 of OMB's "Mid-Session Review, Fiscal Year 2019," July 2018.

4Table 2 of CBO's "An Analysis of the President's 2019 Budget," May 2018.

5Table S-10 of OMB's "Budget of the United States Government, Fiscal Year 2019," February 2018.

*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the

 Federal Reserve’s System Open Market Account (SOMA), but includes financing required due to SOMA redemptions.
Projections are from OMB’s Table S-11 of “Mid-Session Review, Fiscal Year 2019,” July 2018.

OMB’s Projection

(16%)

(14%)

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

200

200820092010201120122013201420152016201720182019202020212022202320242025202620272028

% of GDP

$ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit (LHS) Surplus/Deficit (RHS)

12
Section III:

Financing

13
14

Assumptions for Financing Section (pages 15 to 20)

• Portfolio and SOMA holdings as of 6/30/2018.

• Estimates assume an end date for SOMA capped redemptions at the end of CY2020. The assumption is 

based on the median case from “Statement Regarding the Annual Report on Open Market Operations 

during 2017,” Federal Reserve Bank of New York, April 2018.

• Estimates assume announced issuance sizes and patterns remain constant for nominal coupons, TIPS, 

and FRNs given changes made at May 2018 refunding, while using a total of ~$2.16 trillion of bills 

outstanding. 

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

as of 6/30/2018. 

• No attempt was made to account for future financing needs. 
15

*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve’s System 

Open Market Account (SOMA), but includes financing required due to SOMA redemptions.

**An end-of-June 2018 cash balance of $333 billion versus a beginning-of-April 2018 cash balance of $290 billion. By keeping the cash 

balance constant, Treasury arrives at the net implied funding number. 

Net Bill Issuance (131) Security Gross Maturing Net Gross Maturing Net

Net Coupon Issuance 203 4-Week 550 670 (120) 1,770 1,755 15

Subtotal: Net Marketable Borrowing 72 13-Week 624 642 (18) 1,821 1,710 111

26-Week 546 477 69 1,587 1,341 246

Ending Cash Balance 333 52-Week 78 60 18 224 200 24

Beginning Cash Balance 290 CMBs 0 80 (80) 139 179 (40)

Subtotal: Change in Cash Balance 43 Bill Subtotal 1,798 1,929 (131) 5,541 5,185 356

Net Implied Funding for FY18 Q3** 29

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 64 41 23 135 123 12

2-Year 95 78 17 253 156 97

3-Year 93 72 21 243 222 21

5-Year 106 90 16 311 345 (34)

7-Year 88 37 51 257 155 102

10-Year 68 12 56 196 52 144

30-Year 44 3 41 124 3 121

5-Year TIPS 16 53 (37) 30 53 (23)

10-Year TIPS 11 0 11 46 16 30

30-Year TIPS 5 0 5 17 0 17

Coupon Subtotal 590 387 203 1,612 1,125 487

Total 2,388 2,316 72 7,153 6,310 843

Sources of Privately-Held Financing in Fiscal Year FY18 Q3*

Coupon Issuance Coupon Issuance

April - June 2018 April - June 2018 Fiscal Year-to-Date

Bill Issuance Bill Issuance

April - June 2018 Fiscal Year-to-Date
16

*Privately-held marketable borrowing excludes rollovers (auction “add-ons”) of Treasury securities held in the Federal Reserve’s System Open 

Market Account (SOMA), but includes financing required due to SOMA redemptions.

**Keeping announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs based on changes made at the May 2018 

refunding. 

***Assumes an end-of-September 2018 cash balance of $350 billion versus a beginning-of-July 2018 cash balance of $333 billion.

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

Assuming Constant Coupon Issuance Sizes**

Treasury Announced Net Marketable Borrowing*** 329

Net Coupon Issuance 260

Implied Change in Bills 69

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 50 41 9 185 164 21

2-Year 104 78 26 357 234 123

3-Year 99 72 27 342 294 48

5-Year 108 53 55 419 398 21

7-Year 90 69 21 347 224 123

10-Year 69 14 55 265 66 199

30-Year 45 0 45 169 3 166

5-Year TIPS 14 0 14 44 53 (9)

10-Year TIPS 24 16 8 70 32 38

30-Year TIPS 0 0 0 17 0 17

Coupon Subtotal 603 343 260 2,215 1,469 746

Coupon Issuance Coupon Issuance

Sources of Privately-Held Financing in Fiscal Year FY18 Q4*

July - September 2018

July - September 2018 Fiscal Year-to-Date
17

OMB's projections of the change in debt held by the public (borrowing) are from Table S-11 of “Mid-Session Review, Fiscal Year 2019,” July 

2018. “Other” represents borrowing from the public to provide direct and guaranteed loans.

1,127

1,186 1,164

1,097 1,096

963

763

722

657

590 584

60%

65%

70%

75%

80%

85%

(500)

(300)

(100)

100

300

500

700

900

1,100

1,300

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

% of GDP

$ bn

OMB's Projection of Borrowing from the Public

Primary Deficit (LHS) Net Interest (LHS)

Other (LHS) Debt Held by Public (RHS)

Debt Held by Public Net of Financial Assets (RHS)

The bubbles represent the total net marketable borrowing for that year

$ bn %

Primary Deficit 2,217 22

Net Interest 6,735 68

Other 997 10

Total 9,949 100

FY2018 - FY2028 Cumulative Total
18

OMB's economic assumption of the 10-Year Treasury Note rates are from Table 2 of OMB’s “Mid-Session Review, Fiscal Year 2019,” July 2018. 

CBO’s economic assumption of the 10-Year Treasury Note rates are from Table D-1 of CBO’s “The Budget and Economic Outlook: 2018 to 2028,” 

April 2018. The forward rates are the implied 10-Year Treasury Note rates on June 30, 2018. 

2.3

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

20182019202020212022202320242025202620272028

10-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note

CBO Budget Outlook OMB MSR Implied Forward Rates as of 06/30/2018

10-Year Treasury Rate of 2.861% 

as of 06/30/2018
19

Projected Net Marketable Borrowing 

Assuming Future Issuance Remains Constant

Treasury’s July 2018 primary dealer survey estimates can be found on page 11. OMB's projections of the change in debt held by the public are 

from Table S-11 of “Mid-Session Review, Fiscal Year 2019,” July 2018. CBO’s baseline budget projections of the change in debt held by the public 

are from Table 2 of “An Analysis of the President’s 2019 Budget,” May 2018. See table at the end of this section for details.

*Projections reflect capped SOMA Treasury redemptions up until the end of CY 2020. 

0

200

400

600

800

1,000

1,200

1,400

20182019202020212022202320242025202620272028

$bn

Fiscal Year

Projected Net Marketable Borrowing CBO's "An Analysis of the President's 2019 Budget, " May 2018

OMB's FY 2019 Mid-Session Review, July 2018 PD Survey Marketable Borrowing Estimates

OFPs FY 2018 Net Marketable Borrowing Estimate
20

Historical Net Marketable Borrowing and Projected Net Borrowing 

Assuming Future Issuance Remains Constant, $ billions

Net borrowing capacity reflects capped SOMA redemptions up until the end of CY 2020. 

Treasury’s July 2018 primary dealer survey estimates can be found on page 11. OMB's projections of the change in debt held by the public are 

from Table S-11 of “Mid-Session Review, Fiscal Year 2019,” July 2018. CBO’s baseline budget projections of the change in debt held by the public 

are from Table 2 of CBO’s “An Analysis of the President’s Budget,” May 2018. 

*OFP's FY 2018 Net Marketable Borrowing Estimate.

Fiscal 

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

Historical/Projected 

Net Borrowing 

Capacity

OMB's FY 2019 MidSession Review

CBO's "An Analysis of 

the President's 2019 

Budget "

Primary Dealer 

Survey

2013 (86) 86 720 111 0 830 

2014 (119) (92) 669 88 123 669 

2015 (53) (282) 641 88 164 558 

2016 289 (82) 477 64 47 795 

2017 155 9 292 55 9 519 

2018 356 204 310 51 24 946 1,016* 1,011 923 

2019 0 317 169 44 30 561 1,186 1,049 1,007 

2020 0 158 206 14 6 384 1,164 924 1,025 

2021 0 98 264 (2) (0) 360 1,097 993 

2022 0 67 289 (13) 3 346 1,096 1,085 

2023 0 114 166 (10) 5 274 963 1,018 

2024 0 (7) 245 (13) 1 227 763 911 

2025 0 (31) 228 (56) (2) 138 722 951 

2026 0 (29) 233 (47) (2) 155 657 952 

2027 0 (5) 209 (36) (3) 164 590 1,027 
Section IV:

Portfolio Metrics

21
22

40

45

50

55

60

65

70

75

80

198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018

Weighted Average Maturity (Months)

Calendar Year

Historical Weighted Average Maturity of Marketable 

Debt Outstanding

Historical Historical Average from 1980 to end of FY 2018 Q3

69.5 months on 

06/30/2018

59.7 months (Historical Average 

from 1980 to Present)
23

5

10

15

20

25

30

35

40

45

198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018

Pct %

Calendar Year

Bills Outstanding as a Percent of Portfolio

Historical Average

14.4% on 6/30/2018

Historical Average = 23.1%
24

Recent Maturity Profile, $ billions

Recent Maturity Profile, percent

Date <= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10 Total (0,5]

Sep-10 2,563 1,141 895 1,273 907 856 853 8,488 5,872

Sep-11 2,620 1,334 980 1,541 1,070 1,053 1,017 9,616 6,476

Sep-12 2,951 1,373 1,104 1,811 1,214 1,108 1,181 10,742 7,239

Sep-13 2,939 1,523 1,242 1,965 1,454 1,136 1,331 11,590 7,669

Sep-14 2,935 1,739 1,319 2,207 1,440 1,113 1,528 12,281 8,199

Sep-15 3,097 1,775 1,335 2,382 1,478 1,121 1,654 12,841 8,589

Sep-16 3,423 1,828 1,538 2,406 1,501 1,151 1,800 13,648 9,195

Sep-17 3,631 2,027 1,504 2,433 1,466 1,180 1,946 14,188 9,596

Jun-18 4,074 2,106 1,578 2,457 1,503 1,217 2,038 14,972 10,214

Date <= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10 (0,3] (0,5]

Sep-10 30.2 13.4 10.5 15.0 10.7 10.1 10.0 54.2 69.2

Sep-11 27.2 13.9 10.2 16.0 11.1 10.9 10.6 51.3 67.3

Sep-12 27.5 12.8 10.3 16.9 11.3 10.3 11.0 50.5 67.4

Sep-13 25.4 13.1 10.7 17.0 12.5 9.8 11.5 49.2 66.2

Sep-14 23.9 14.2 10.7 18.0 11.7 9.1 12.4 48.8 66.8

Sep-15 24.1 13.8 10.4 18.5 11.5 8.7 12.9 48.3 66.9

Sep-16 25.1 13.4 11.3 17.6 11.0 8.4 13.2 49.7 67.4

Sep-17 25.6 14.3 10.6 17.1 10.3 8.3 13.7 50.5 67.6

Jun-18 27.2 14.1 10.5 16.4 10.0 8.1 13.6 51.8 68.2
25

0

10

20

30

40

50

60

70

80

1980198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018

Pct %

Calendar Year

Treasury Maturity Profile History

Percent Maturing < 1 Year Percent Maturing Between 0 and 3 Years
Section V:

Demand

26
27

*Weighted averages of Competitive Awards.

**Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS 10-year equivalent, a 

constant auction BEI is used as the inflation assumption.

Security 

Type Term Stop Out Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards 

($bn)

% Primary 

Dealer*

% 

Direct*

% 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA 

"AddOns" ($bn)

10-Year 

Equivalent 

($bn)**

Bill 4-Week 1.702 3.1 539.4 53.0 9.9 37.1 10.6 0.0 4.9

Bill 13-Week 1.847 3.0 606.6 55.0 6.6 38.4 17.4 0.0 18.0

Bill 26-Week 2.012 3.1 529.2 46.5 4.3 49.2 16.8 0.0 31.5

Bill 52-Week 2.250 3.5 76.1 47.1 8.0 44.9 1.9 0.0 9.0

Coupon 2-Year 2.542 2.7 97.4 43.6 15.4 41.0 1.6 14.1 25.7

Coupon 3-Year 2.595 2.8 92.5 40.8 11.0 48.2 0.5 7.5 33.9

Coupon 5-Year 2.806 2.5 106.8 29.2 11.3 59.5 0.2 15.2 66.5

Coupon 7-Year 2.896 2.6 88.9 22.4 13.6 63.9 0.1 12.6 75.1

Coupon 10-Year 2.923 2.5 67.9 31.4 10.9 57.7 0.1 6.1 74.7

Coupon 30-Year 3.095 2.4 44.0 27.1 10.8 62.1 0.0 4.1 109.8

TIPS 5-Year 0.631 2.6 15.9 23.2 14.3 62.4 0.1 2.0 10.4

TIPS 10-Year 0.934 2.4 11.0 29.0 6.7 64.3 0.0 1.9 14.0

TIPS 30-Year 0.934 2.6 5.0 14.6 4.6 80.8 0.0 0.0 15.0

FRN 2-Year 0.034 3.2 48.9 49.2 9.3 41.5 0.1 2.2 0.0

Total Bills 1.870 3.1 1,751.4 51.5 7.0 41.5 46.6 0.0 63.4

Total Coupons 2.773 2.6 497.6 33.1 12.4 54.6 2.4 59.6 385.7

Total TIPS 0.783 2.5 31.9 23.9 10.2 65.9 0.1 4.0 39.4

Total FRN 0.034 3.2 48.9 49.2 9.3 41.5 0.1 2.2 0.0

Summary Statistics for Fiscal Year 2018 Q3 Auctions
28

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Dec-08

Mar-09

Jun-09

Oct-09

Jan-10

Apr-10

Jul-10

Nov-10

Feb-11

May-11

Aug-11

Dec-11

Mar-12

Jun-12

Sep-12

Jan-13

Apr-13

Jul-13

Oct-13

Feb-14

May-14

Aug-14

Nov-14

Mar-15

Jun-15

Sep-15

Dec-15

Apr-16

Jul-16

Oct-16

Jan-17

May-17

Aug-17

Nov-17

Feb-18

Jun-18

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)
29

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Bid-to-Cover Ratio

Bid-to-Cover Ratios for FRNs

(6-Month Moving Average)
30

1.5

2

2.5

3

3.5

4

Jun-13

Aug-13

Nov-13

Jan-14

Apr-14

Jul-14

Sep-14

Dec-14

Mar-15

May-15

Aug-15

Nov-15

Jan-16

Apr-16

Jun-16

Sep-16

Dec-16

Feb-17

May-17

Aug-17

Oct-17

Jan-18

Mar-18

Jun-18

Bid-to-Cover Ratio

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

(6-Month Moving Average)

2-Year 3-Year 5-Year
31

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

3

Jun-13

Aug-13

Nov-13

Jan-14

Apr-14

Jul-14

Sep-14

Dec-14

Mar-15

May-15

Aug-15

Nov-15

Jan-16

Apr-16

Jun-16

Sep-16

Dec-16

Feb-17

May-17

Aug-17

Oct-17

Jan-18

Mar-18

Jun-18

Bid-to-Cover Ratio

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

(6-Month Moving Average)

7-Year 10-Year 30-Year
32

1

1.5

2

2.5

3

3.5

Mar-08

Jun-08

Sep-08

Dec-08

Apr-09

Jul-09

Oct-09

Jan-10

May-10

Aug-10

Nov-10

Feb-11

Jun-11

Sep-11

Dec-11

Mar-12

Jul-12

Oct-12

Jan-13

Apr-13

Aug-13

Nov-13

Feb-14

May-14

Sep-14

Dec-14

Mar-15

Jun-15

Oct-15

Jan-16

Apr-16

Jul-16

Nov-16

Feb-17

May-17

Aug-17

Dec-17

Mar-18

Jun-18

Bid-to-Cover Ratio

Bid-to-Cover Ratios for TIPS

5-Year 10-Year (6-month moving average) 20-Year 30-Year
33

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

5%

10%

15%

20%

25%

30%

35%

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

13-week moving average

Percent Awarded in Bill Auctions by Investor Class 

(13-Week Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
34

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

6-month moving average

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

Auctions by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
35

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

70%

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

6-month moving average

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

by Investor Class (6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
36

Excludes SOMA add-ons. The “Other” category includes categories that are each less than 5%, which include Depository Institutions, Individuals, 

Pension and Insurance.

0%

10%

20%

30%

40%

50%

60%

70%

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

6-month moving average

Percent Awarded in TIPS Auctions by Investor Class

(6-Month Moving Average)

Other Dealers and Brokers Investment Funds Foreign and International Other
37

Excludes SOMA add-ons. 

10%

20%

30%

40%

50%

60%

70%

80%

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

% of Total Competitive Amount Awarded

Primary Dealer Awards at Auction

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

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

TIPS (6-month moving average)
38

Excludes SOMA add-ons. 

0%

5%

10%

15%

20%

25%

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18

Apr-18

Jun-18

% 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)
39

Foreign includes both private sector and official institutions.

0

10

20

30

40

50

60

70

80

90

100

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

$ bn

Total Foreign Awards of Treasuries at Auction, $ billions

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

40
41 *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-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

4-Week 4/5/2018 1.695 2.90 54.2 47.7 9.1 43.1 0.8 0.0 0.5

4-Week 4/12/2018 1.620 3.25 44.2 53.3 9.2 37.5 0.8 0.0 0.4

4-Week 4/19/2018 1.630 3.08 44.2 59.1 9.8 31.1 0.8 0.0 0.4

4-Week 4/26/2018 1.680 3.16 44.1 50.0 12.1 37.9 0.9 0.0 0.4

4-Week 5/3/2018 1.650 3.04 44.2 59.4 11.5 29.1 0.8 0.0 0.4

4-Week 5/10/2018 1.660 3.22 44.2 58.6 9.9 31.5 0.8 0.0 0.4

4-Week 5/17/2018 1.655 3.13 44.2 48.5 11.6 39.9 0.8 0.0 0.4

4-Week 5/24/2018 1.720 3.10 44.1 56.3 7.2 36.5 0.9 0.0 0.4

4-Week 5/31/2018 1.750 3.25 39.3 39.9 12.6 47.4 0.7 0.0 0.4

4-Week 6/7/2018 1.780 3.04 34.2 63.6 6.3 30.1 0.8 0.0 0.3

4-Week 6/14/2018 1.790 3.36 34.1 47.8 6.0 46.2 0.9 0.0 0.3

4-Week 6/21/2018 1.815 3.16 34.2 59.5 12.1 28.4 0.8 0.0 0.3

4-Week 6/28/2018 1.770 3.05 34.2 46.0 11.3 42.7 0.8 0.0 0.3

13-Week 4/5/2018 1.740 2.88 47.3 52.0 8.7 39.3 0.7 0.0 1.4

13-Week 4/12/2018 1.715 2.92 47.1 64.1 9.3 26.7 0.9 0.0 1.4

13-Week 4/19/2018 1.760 3.13 46.7 45.3 7.3 47.4 1.3 0.0 1.4

13-Week 4/26/2018 1.830 2.98 46.2 58.7 6.9 34.4 1.8 0.0 1.4

13-Week 5/3/2018 1.835 2.87 46.2 54.7 5.8 39.4 1.8 0.0 1.4

13-Week 5/10/2018 1.840 2.95 47.0 59.9 7.2 33.0 1.0 0.0 1.4

13-Week 5/17/2018 1.890 3.04 46.6 59.3 7.9 32.8 1.4 0.0 1.4

13-Week 5/24/2018 1.895 3.10 46.6 47.7 7.1 45.2 1.4 0.0 1.4

13-Week 5/31/2018 1.895 2.82 46.2 66.2 6.5 27.4 1.8 0.0 1.4

13-Week 6/7/2018 1.910 3.16 46.8 50.9 4.3 44.8 1.2 0.0 1.4

13-Week 6/14/2018 1.910 3.01 47.0 54.6 4.3 41.1 1.0 0.0 1.4

13-Week 6/21/2018 1.900 3.12 46.7 48.5 4.8 46.7 1.3 0.0 1.4

13-Week 6/28/2018 1.900 2.89 46.1 53.1 5.7 41.2 1.9 0.0 1.4

26-Week 4/5/2018 1.905 3.10 40.3 48.2 6.0 45.8 1.7 0.0 2.4

26-Week 4/12/2018 1.880 3.04 40.3 49.7 4.8 45.5 1.7 0.0 2.4

26-Week 4/19/2018 1.945 3.12 40.8 48.3 4.1 47.6 1.2 0.0 2.4

26-Week 4/26/2018 1.985 3.27 40.2 38.1 3.2 58.7 1.8 0.0 2.4

26-Week 5/3/2018 1.990 3.17 40.6 41.9 4.6 53.4 1.4 0.0 2.4

26-Week 5/10/2018 2.000 3.12 41.1 52.0 6.1 42.0 0.9 0.0 2.4

26-Week 5/17/2018 2.035 2.98 41.0 46.6 5.5 47.9 1.0 0.0 2.4

26-Week 5/24/2018 2.080 3.16 40.9 46.0 4.2 49.8 1.1 0.0 2.4

26-Week 5/31/2018 2.030 3.10 40.6 52.1 4.8 43.0 1.4 0.0 2.4

26-Week 6/7/2018 2.070 3.27 40.9 41.3 3.9 54.9 1.1 0.0 2.4

26-Week 6/14/2018 2.075 3.59 41.0 28.3 2.3 69.4 1.0 0.0 2.4

26-Week 6/21/2018 2.075 2.78 41.0 63.3 2.1 34.6 1.0 0.0 2.4

26-Week 6/28/2018 2.085 3.00 40.3 48.1 4.8 47.1 1.7 0.0 2.4

52-Week 4/26/2018 2.200 3.39 25.3 51.8 9.4 38.7 0.7 0.0 3.0

52-Week 5/24/2018 2.275 3.68 25.4 42.3 7.5 50.1 0.6 0.0 3.0

52-Week 6/21/2018 2.275 3.41 25.4 47.1 6.9 45.9 0.6 0.0 3.0

Bills
42

*Weighted averages of competitive awards.

**Approximated using prices at settlement and includes both competitive and non-competitive awards. For TIPS’ 10-Year equivalent, a constant 

auction BEI is used as the inflation assumption.

Issue Settle Date Stop Out 

Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % 

Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

2-Year 4/30/2018 2.498 2.61 31.5 43.1 15.3 41.6 0.5 4.1 8.3

2-Year 5/31/2018 2.590 2.88 32.4 45.4 15.3 39.3 0.6 5.7 8.7

2-Year 7/2/2018 2.538 2.73 33.5 42.3 15.4 42.3 0.5 4.2 8.7

3-Year 4/16/2018 2.450 2.85 29.8 40.9 11.6 47.6 0.2 0.1 10.1

3-Year 5/15/2018 2.664 2.76 30.8 42.2 12.3 45.6 0.2 7.5 13.1

3-Year 6/15/2018 2.664 2.83 31.8 39.4 9.2 51.4 0.2 0.0 10.7

5-Year 4/30/2018 2.837 2.49 34.9 26.2 13.7 60.2 0.1 4.5 21.6

5-Year 5/31/2018 2.864 2.52 35.9 32.9 10.9 56.2 0.1 6.3 22.8

5-Year 7/2/2018 2.719 2.55 36.0 28.5 9.5 62.0 0.0 4.5 22.1

7-Year 4/30/2018 2.952 2.56 29.0 21.6 12.7 65.8 0.0 3.7 24.3

7-Year 5/31/2018 2.930 2.62 30.0 21.6 12.9 65.5 0.0 5.2 25.8

7-Year 7/2/2018 2.809 2.53 30.0 24.1 15.2 60.6 0.0 3.7 25.0

10-Year 4/16/2018 2.795 2.46 21.0 38.4 8.4 53.2 0.0 0.0 21.0

10-Year 5/15/2018 2.995 2.56 25.0 28.7 8.3 63.0 0.0 6.0 31.7

10-Year 6/15/2018 2.962 2.59 22.0 27.7 16.3 56.0 0.0 0.0 22.0

30-Year 4/16/2018 3.044 2.41 13.0 24.4 14.6 61.0 0.0 0.0 29.7

30-Year 5/15/2018 3.130 2.38 17.0 28.9 8.3 62.7 0.0 4.1 48.5

30-Year 6/15/2018 3.100 2.38 14.0 27.5 10.3 62.2 0.0 0.0 31.6

2-Year FRN 4/30/2018 0.033 3.65 17.0 49.1 13.0 38.0 0.0 2.2 0.0

2-Year FRN 5/25/2018 0.028 3.26 16.0 43.1 7.5 49.3 0.0 0.0 0.0

2-Year FRN 6/29/2018 0.042 2.79 16.0 55.3 7.2 37.5 0.0 0.0 0.0

Nominal Coupons

Issue Settle Date Stop Out 

Rate (%)*

Bid-toCover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % Indirect*

NonCompetitive 

Awards ($bn)

SOMA "Add 

Ons" ($bn)

10-Year 

Equivalent 

($bn)*

5-Year TIPS 4/30/2018 0.631 2.55 15.9 23.2 14.3 62.4 0.1 2.0 10.4

10-Year TIPS 5/31/2018 0.934 2.42 11.0 29.0 6.7 64.3 0.0 1.9 14.0

30-Year TIPS 6/29/2018 0.934 2.62 5.0 14.6 4.6 80.8 0.0 0.0 15.0

TIPS
43

Perspectives on Auction Sizes at Short-end versus “Belly” of the Curve

• Prior to increases in coupon sizes announced with the February 2018 quarterly refunding, the 2-, 3-, 

and 5-year note auction sizes were below historical maximums by $18bn, $16bn, and $8bn, 

respectively.

• Currently, this gap has decreased to $9bn, $7bn, and $6bn for the 2-, 3-, and 5-year notes, 

respectively.

• In April 2018, dealers provided updates on the auction sizes that wouldn’t surprise them for the 

end of FY2018: $40bn, $38bn, and $40bn for the 2-, 3-, and 5-year notes, respectively, with higher 

levels for the end of FY2019.

35

0

5

10

15

20

25

30

35

40

45

50

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Auction Offering Amount, $ bn

2-Year Note

Historical Max = $44 bn

PD FY18 max = $40 bn

PD FY19 max = $44 bn

33

0

5

10

15

20

25

30

35

40

45

50

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Auction Offering Amount, $ bn

3-Year Note

Historical Max = $40 bn

PD FY18 max = $38 bn

PD FY19 max = $42 bn

36

0

5

10

15

20

25

30

35

40

45

50

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Auction Offering Amount, $ bn

5-Year Note

Historical Max = $42 bn

PD FY18 max = $40 bn

PD FY19 max = $44 bn

Primary dealer auction size survey can be found via the following link:

https://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Pages/archived-auction-survey.aspx
TBAC charge: We would like the Committee to comment 

on commercial bank demand for HQLA and, more 

specifically, the role of Treasury holdings within banks' 

HQLA portfolios. Given projections for SOMA portfolio 

normalization over the coming years, please also comment 

on how bank demand for Treasury securities is likely to 

evolve over the medium-term (3-5 years).

July 31, 2018
• Evolution of bank balance sheets in the post-crisis LSAP era

• Impact of SOMA portfolio normalization on balance sheets 

• HQLA composition shifts and replacement needs

• Projected bank demand for Treasuries

• Impact of economic and rate cycle dynamics on HQLA composition 

and demand

Agenda

2
3

Executive summary

• Bank balance sheet liquidity has increased significantly over the last few years

— Response to the credit crisis, Fed balance sheet actions, and regulatory changes 

• SOMA portfolio normalization will ripple through banks’ balance sheets over the next 

few years

— We project deposit growth will slow, loan-to-deposit ratios will likely rise, and reserve 

balances will decline as the Fed balance sheet normalization progresses

• Decline in available fed balances will likely create a large shift in HQLA composition 

— LCR ratios will face downward pressure and additional new HQLA will be needed to replace 

declining fed balances

— Extent of additional HQLA needed will vary based on the size and pace of the Fed balance 

sheet reduction, deposit run-off sensitivity, and loan demand

— New HQLA likely to be funded with a combination of reduced loan growth, wholesale debt 

funding, and a shift in banks’ securities portfolio composition 

• Bank demand for Treasuries is estimated to rise by up to $500bn by 2021 

— Treasuries are likely to become a larger part of HQLA in the coming years, leading to a sharp 

increase in bank demand

— Treasury bills are likely to play an increasingly important role in bank liquidity management

— Treasury demand may also be impacted by a need to add duration and lower credit risk given 

the broader economic, interest rate, and credit cycle dynamics
Evolution of bank balance sheets

4
Balance sheet of consolidated U.S. banking organizations

5

Source (All Charts): Federal Reserve Bank of New York (Quarterly Trends for Consolidated U.S. Banking Organizations), Federal Reserve Bank of St. Louis

* Change from 2007 to 2017

Federal Reserve Balance Sheet ($bn) 1997 2002 2007 2012 2014 2017 10yr 

Change*

Excess Reserves 2 2 2 1,459 2,524 2,121 2,119 

CAGRs (%)

Consolidated U.S. Banks ($bn) 1997-

2002

2002-

2007

2007-

2012

2012-

2017

2007-

2017

Total Assets 5,282 8,255 13,985 17,054 17,980 20,406 6,421 9.3 11.1 4.0 3.7 3.9

Cash incl. Central Bank Balances 314 403 547 1,398 1,939 1,927 1,380 5.1 6.3 20.6 6.6 13.4

Securities 939 1,515 1,775 2,901 3,077 3,401 1,626 10.0 3.2 10.3 3.2 6.7

Loans 3,012 4,279 7,144 7,487 8,091 9,564 2,420 7.3 10.8 0.9 5.0 3.0

Other Assets 1,017 2,058 4,518 5,268 4,873 5,513 995 15.1 17.0 3.1 0.9 2.0

Total Liabilities 4,826 7,494 12,834 15,248 16,003 18,137 5,302 9.2 11.4 3.5 3.5 3.5

Deposits 3,466 4,788 7,232 9,698 10,622 12,193 4,961 6.7 8.6 6.0 4.7 5.4

Other Liabilities 1,360 2,706 5,603 5,551 5,382 5,944 341 14.8 15.7 -0.2 1.4 0.6

Equity 456 761 1,150 1,805 1,977 2,270 1,119 10.8 8.6 9.4 4.7 7.0

Nominal GDP 8,578 10,936 14,452 16,197 17,522 19,485 5,033 5.0 5.7 2.3 3.8 3.0

Ratios (%)

Cash incl. Central Bank Balances/Total Assets 5.9 4.9 3.9 8.2 10.8 9.4 5.5

Securities/Total Assets 17.8 18.4 12.7 17.0 17.1 16.7 4.0

Loans/Deposits 86.9 89.4 98.8 77.2 76.2 78.4 (20.3)

Deposits/Total Liabilities 71.8 63.9 56.3 63.6 66.4 67.2 10.9

Equity/Total Assets 8.6 9.2 8.2 10.6 11.0 11.1 2.9

Equity/Total Loans 15.1 17.8 16.1 24.1 24.4 23.7 7.6
• Historically, loan and deposit growth have tracked each other very closely

• Deposit growth has significantly outpaced loan growth after the commencement of LSAPs

• Large banks and foreign banks have seen the most significant build-up in excess reserves

• It is reasonable to expect that deposit growth will be negatively impacted as the Fed reduces its 

balance sheet

• However, estimating a precise impact of balance sheet reduction on deposit growth remains 

challenging 

• We estimate about a 50% “flow-through” from excess reserve reduction into “non-core” deposit 

run-off for the U.S. banks, but acknowledge that considerable uncertainty remains

• We expect solid growth in core deposits to continue, resulting in modest growth in total deposits

Impact of balance sheet reduction on deposit flows 

remains uncertain

6

Source (All Charts/Tables): Fitzgerald et al “The impact of the Fed reducing its balance sheet on the financial system”, Goldman Sachs Global Investment Research, June 19, 2017.

Foreign Bank Deposits Have Not Ramped with Deposits:

QE Liquidity vs Deposit Growth (2008-17)
LSAPs and regulatory changes have significantly impacted 

balance sheet composition post the great recession

7

0

2

4

6

8

10

12

14

$tn Loans and Deposits

Loans Deposits

70

75

80

85

90

95

100

105

% Loan to Deposit Ratio

10

12

14

16

18

20

22

24

26

% HQLA Eligible Assets to Total Assets Ratio

2

3

4

5

6

7

8

9

10

11

12

% Cash incl. Central Bank Balances to Total 

Assets Ratio

Source (All Charts): Federal Reserve Bank of New York (Quarterly Trends for Consolidated U.S. Banking Organizations)
Securities portfolios have shifted to more liquid 

products

8

0

10

20

30

40

50

60

70

80

90

100

% of Total Securities

Securities Portfolio Distribution

Treasuries U.S. Government Agencies Agency MBS Other

0

2

4

6

8

10

12

14

16

18

%

Treasuries to AFS/HTM Securities Ratio

Consolidated U.S. Banking Organizations

Securities Portfolio

$ Billions 2001Q4 2007Q4 2017Q4

AFS/HTM Securities ($bn)

Treasuries 52 40 479

U.S. Government Agencies 201 222 144

Agency MBS 572 749 1,825

Other 545 764 953

Total AFS/HTM Securities 1,370 1,775 3,401

AFS/HTM Securities (%)

Treasuries 3.8 2.2 14.1

U.S. Government Agencies 14.7 12.5 4.2

Agency MBS 41.8 42.2 53.7

Other 39.7 43.0 28.0

Total AFS/HTM Securities 100.0 100.0 100.0

Source (All Charts/Tables): Federal Reserve Bank of New York (Quarterly Trends for Consolidated U.S. Banking Organizations)

• Bank securities portfolios have increased 

significantly in recent years 

• Most of the growth has come in Treasuries and 

Agency MBS holdings

— Treasury holdings have grown both outright and as a 

portion of the overall portfolio 

• Private label holdings are a smaller portion of the 

overall portfolio

— Private label securities have fallen from 43% of total 

securities holdings in 2007 to only 28% in 2017
Impact of SOMA portfolio normalization on 

bank balance sheets 

9
10

Liquidity Coverage Ratio (LCR) 

High-Quality Liquid Assets (HQLA)

Total Net Cash Outflows (TNCO) ≥ 100%

High Quality Liquid Assets: Key Drivers

— Central Bank Balances

— Treasuries and Other Government Securities

— Agency Debentures and Agency MBS

Total Net Cash Outflows: Key Drivers

— Retail Deposit Balances and Composition 

— Corporate and Institutional Deposit Balances and Composition 

— Unfunded Loan Balances and Composition

— Net Derivatives and Secured Funding Outflows

LCR =
LSAP unwind will primarily impact large “LCR” 

banks 

0

20

40

60

80

100

HQLA Cash incl. Central

Bank Balances

Treasuries Agency MBS

% LCR-Bank Holdings/Total (%)

LCR BHCs Non-LCR

11

• The demand for additional HQLA will 

be primarily driven by banks subject 

to LCR (“LCR BHCs”)

— Smaller non-LCR regional banks were 

likely not impacted by LSAPs

• Projections do not take into account 

changes in non-U.S. central bank 

balances

As of 12/31/2017

Cons. U.S. 

Banks ($bn)

LCR BHCs Non-LCR All LCR BHCs GSIBs

$bn % of Total $bn % of Total $bn % of Total

Total Assets 20,406 16,207 79 10,988 54 4,199 21

Cash incl. Central Bank Balances 1,927 1,697 88 1,354 70 230 12

Securities 3,401 2,638 78 1,748 51 763 22

Treasuries 479 446 93 319 67 33 7

Other Securities 2,922 2,192 75 1,429 49 730 25

Loans 9,564 6,712 70 3,893 41 2,852 30

Other Assets** 5,513 5,160 94 3,993 72 354 6

Total Liabilities 18,137 14,425 80 9,830 54 3,712 20

Deposits 12,193 8,921 73 5,777 47 3,272 27

Other Liabilities*** 5,944 5,504 93 4,053 68 439 7

Equity 2,270 1,782 79 1,158 51 487 21

HQLA* 3,649 3,109 85 2,304 63 540 15

Loans/Deposits (%) 78 75 67 87

Cash incl. Central Bank Balances/Assets (%) 9 10 12 5

Source (All Charts/Tables): Federal Reserve Bank of New York (Quarterly Trends for Consolidated U.S. Banking Organizations) and SNL Financial

* HQLA represents HQLA net of haircuts and eligibility. Non-LCR banks follow assumptions of non-GSIB LCR banks.

** Other Assets include Trading Assets, Fed Funds Sold & Reverse Repos, and Other Assets

*** Other Liabilities include Fed Funds Purchased & Repos and Other Liabilities
Fed balance sheet reduction will result in a 

shift in HQLA composition

• We project excess reserve reduction to 

result in a run-off in “non-core” deposits 

which will likely offset some of the growth 

in “core” deposits

• Our base case scenario is consistent with 

the SOMA ”median scenario” reduction in 

excess reserves of about $1.6tn

— We model a 50% “flow-through” to 

deposits which results in a loss of about 

$800bn in “non-core” deposits 

— Key balance sheet line items other than 

deposits are assumed to continue growing 

at growth rates observed over past five 

years

• HQLA is projected to decline by about 

$480bn as bank lose “non-core” deposits, 

leading to a decrease in Level 1 assets

• As available fed balances decline, banks 

will need to increase Treasury holdings to 

prevent a further sharp decline in HQLA 

and LCR

12

Projected Balance Sheets

$bn 2017 2018 2019 2020 2021 CAGRs

(%)*

Federal Reserve Balance Sheet

Excess Reserves 2,121 1,621 1,121 821 481

LCR BHCs Balance Sheet

Assets

Central Bank Balances** 1,697 1,447 1,197 1,047 878

Securities 2,638 2,760 2,886 3,014 3,145

Treasuries 446 498 550 603 656

Other Securities 2,192 2,263 2,336 2,411 2,489 3.2

Loans & Leases 6,712 7,049 7,403 7,775 8,165 5.0

Other Assets 5,160 5,207 5,255 5,303 5,351 0.9

Total Assets 16,207 16,464 16,741 17,139 17,539

Liabilities

Deposits 8,921 9,018 9,130 9,359 9,585

Core Deposits 7,860 8,208 8,570 8,949 9,344 4.4

Non-Core Deposits*** 1,060 810 560 410 241

Other Liabilities 5,504 5,580 5,657 5,735 5,814 1.4

Total Liabilities 14,425 14,598 14,788 15,094 15,399

Equity 1,782 1,866 1,953 2,045 2,140 4.7

HQLA 3,109 2,942 2,776 2,712 2,630

Key Ratios

Loan/Deposits (%) 75.2 78.2 81.1 83.1 85.2

Central Bank Balances/Assets (%) 10.5 8.8 7.2 6.1 5.0

HQLA/Assets (%) 19.2 17.9 16.6 15.8 15.0

*** Other Securities, Loans & Leases, Other Assets, Core Deposits, Other Liabilities and 

*** Equity projected to grow using 2012-2017 compound annual growth rate (“CAGR”)

*** Fed balances at LCR BHCs are modeled to be 50% of overall excess reserves on the

Fed balance sheet. Central Bank balances also include balances held at foreign central banks

*** Non-core deposits are modeled to be 50% of overall excess reserves on the

Fed balance sheet
Furthermore, additional HQLA will be needed to 

comply with LCR requirements

• LCR ratio will face downward pressure as “non-core” deposits run-off and reserve balances 

decline

— Deposit run-off is expected to be concentrated in non-operational wholesale deposits that have large 

run-off rates in the LCR calculation 

— Growth in “core deposits” and loan commitments is expected to create additional new outflows, 

offsetting outflow decline from attrition in ”non-core” deposits

• We estimate that banks will need to rebuild $250-350bn in HQLA by 2021 to maintain 

an LCR level of 110%

13

Projected LCR BHCs HQLA Need

$bn 2017 2018 2019 2020 2021 Change

Federal Reserve Balance Sheet

Excess Reserves 2,121 1,621 1,121 821 481 (1,640)

LCR BHCs Balance Sheet

Loans 6,712 7,049 7,403 7,775 8,165 1,453 

Deposits 8,921 9,018 9,130 9,359 9,585 664 

Core Deposits 7,860 8,208 8,570 8,949 9,344 1,484 

Non-Core Deposits 1,060 810 560 410 241 (820)

HQLA 3,109 2,942 2,776 2,712 2,630 (479)

Central Bank Balances 1,697 1,447 1,197 1,047 878 (820)

Treasuries 446 498 550 603 656 210 

Other Securities 966 997 1,029 1,062 1,097 131 

Total Net Outflows 2,605 2,598 2,587 2,622 2,654 49 

Core Deposit Net Outflows 1,173 1,225 1,279 1,335 1,394 221 

Non-Core Deposit Net Outflows 457 350 242 177 104 (354)

Other Net Outflows 975 1,024 1,066 1,110 1,156 181 

LCR (%) 119 113 107 103 99 (20)

LCR Target (%) 119 117 115 112 110 (9)

HQLA need for LCR Target 0 98 198 224 289 289 
Additional bank demand for Treasuries projected to 

increase by up to $500bn by 2021

14

Projected Pro-Forma Balance Sheets

$bn 2017 2018 2019 2020 2021 Change

Federal Reserve Balance Sheet

Excess Reserves 2,121 1,621 1,121 821 481 (1,640)

LCR BHCs Balance Sheet

Assets

Central Bank Balances** 1,697 1,447 1,197 1,047 878 (820)

Securities 2,638 2,859 3,084 3,239 3,434 796 

Treasuries 446 596 748 827 945 499 

Other Securities* 2,192 2,263 2,336 2,411 2,489 297 

Loans & Leases* 6,712 7,049 7,403 7,775 8,165 1,453 

Other Assets* 5,160 5,207 5,255 5,303 5,351 192 

Total Assets 16,207 16,562 16,939 17,363 17,828 1,621 

Liabilities

Deposits 8,921 9,018 9,130 9,359 9,585 664 

Core Deposits* 7,860 8,208 8,570 8,949 9,344 1,484 

Non-Core Deposits*** 1,060 810 560 410 241 (820)

Other Liabilities* 5,504 5,678 5,855 5,960 6,103 599 

Total Liabilities 14,425 14,696 14,986 15,319 15,688 1,263 

Equity* 1,782 1,866 1,953 2,045 2,140 358 

LCR

HQLA 3,109 3,040 2,975 2,937 2,919 (190)

Total Net Outflows 2,605 2,598 2,587 2,622 2,654 49 

LCR (%) 119 117 115 112 110 (9)

Key Ratios

Loan/Deposits (%) 75.2 78.2 81.1 83.1 85.2 9.9

Central Bank Balances/Assets (%) 10.5 8.7 7.1 6.0 4.9 (5.6)

HQLA/Assets (%) 19.2 18.4 17.6 16.9 16.4 (2.8)

Rebuild LCR Target

Term Debt Issuance 0 98 198 224 289 289 

Treasury Purchases 0 98 198 224 289 289 

* Other Securities, Loans & Leases, Other Assets, Core Deposits, Other Liabilities and 

Equity projected to grow using 2012-2017 compound annual growth rate (“CAGR”); 

Other Liabilities includes New Debt to rebuild LCR Target

** Fed balances at LCR BHCs are modeled to be 50% of overall excess reserves on the

Fed balance sheet. Central Bank balances also include balances held at foreign central banks

*** Non-core deposits are modeled to be 50% of overall excess reserves on the Fed balance sheet

• Pro-forma balance sheet projected 

under base case scenario

— Assume banks issue $289bn in term 

debt to rebuild HQLA by investing in 

Treasuries

• Dwindling fed balances imply that 

the HQLA rebuild would likely 

comprise mostly of Level 1 

securities

• Further, Treasury bills are likely to 

become an important substitute for 

a portion of the declining reserve 

balances 

• T-bill versus T-note split within the 

Treasury holdings will vary over 

time based on balance sheet 

duration and liquidity needs 
Size and pace of reduction in excess reserves, along with loan 

growth, will be the key drivers of incremental HQLA required

• A smaller reduction* in the Fed balance sheet 

leads to a $102bn decrease in the amount of 

HQLA, while a larger reduction* leads to a 

$54bn decrease in the amount of HQLA needed

• 10% increase in the “flow-through” rate to 

“non-core” deposit run-off will result in $107bn 

more HLQA needed

• Increasing loan growth from 5% to 6% 

annually leads to a sharp increase in HQLA 

needed

• Deposit mix has a relatively low impact on 

incremental HQLA need

15

HQLA needed to rebuild to LCR target in 2021

Larger BS Median Smaller BS

Annualized Loan 

Growth HQLA Need ($bn) Loans/DepositsRatio (%) HQLA Need ($bn) Loans/DepositsRatio (%) HQLA Need ($bn) Loans/DepositsRatio (%)

3% (502) 77.2 (400) 78.8 (345) 79.7 

4% (166) 80.3 (64) 81.9 (9) 82.8 

5% 187 83.5 289 85.2 343 86.1 

6% 535 86.6 654 88.4 722 89.4 

7% 982 90.0 1,110 91.8 1,178 92.8 

0

100

200

300

400

500

600

700

30% 40% 50% 60% 70%

$bn

Excess Reserve to Deposit Runoff Beta

HQLA needed to rebuild to LCR target in 2021

Larger BS Median Smaller BS

*Source: SOMA projection annual report
Banks have several options to rebuild their HQLA

16

Option 1

• Issue term debt and use funds to grow the Treasury portfolio

— Investing all of the proceeds in Treasuries would increase HQLA by 1:1

— Issuing debt and using funds to grow securities using current HQLA securities composition would 

increase HQLA by 0.93:1

Option 2

• Alter composition of the securities portfolio

— Reducing Level 2A securities to add Treasuries would increase HQLA by 0.18:1 

— Reducing Level 3 securities to add Treasuries would increase HQLA by 1:1

Option 3

• Decrease loan-to-deposit ratio and grow the securities portfolio

— Reducing loans to invest the proceeds in Treasuries would increase HQLA by 1:1
Factors influencing HQLA composition

17
Drivers of securities portfolio composition

18

Bank HQLA/Securities Matrix

Asset Type Liquidity/HQLA Duration Yield/Income

Central Bank Balances Highest Zero Low

Treasuries Highest Low/Medium/High Low/Medium

Agency MBS High Medium Medium

Other Level 2 Medium Medium Medium/High

Level 3 Low Low/Medium High

• Securities portfolio and swaps are used to manage interest rate risk and deploy excess 

liquidity

• Liquidity and LCR constraints, duration needs, and yield and income considerations drive 

allocation decisions across the various alternatives 

— Treasuries are an important source of duration and also offer more attractive yields versus central bank 

balances

— Level 2 assets have more attractive yields, but have less liquidity and less attractive HQLA benefits

— Level 3 assets have no HQLA benefit, but offer attractive yields

— Relative value considerations play an important role as banks will often think about optimizing total return 

over a medium term horizon

• Decline in reserve balances will likely result in T-bills playing a more significant role in 

liquidity management
Banks have been very asset sensitive over 

the past several years 

19

Weighted Average NII Sensitivity: % Change over the Next 12 Months

Year End 2017 2016 2007 2006 2005

Instantaneous +100 bps 4.6 5.9 -1.2 -0.7 0.1

Gradual +100 bps 2.4 2.7 -0.4 -0.4 0.3

Gradual +200 bps 3.2 3.6 -0.3 -0.5 0.1

Source: Bank 10Ks. NII changes are weighted averages based on total assets of each bank at each year end

*DoE calculation assumes economic value of equity for top 100 banks to be the same as their market capitalization 

which was calculated using SNL and Bloomberg data to be around $3.5tn as of 12/31/2017 

• Banks use duration of equity (DoE) and net interest income (NII) sensitivity to interest rate 

changes as key metrics for evaluating and managing interest rate risk

— DoE measures the sensitivity of the economic value of equity to changes in interest rate levels

• Record low interest rates combined with strong deposit growth has resulted in banks being 

very asset sensitive (income and economic equity value benefit from rising rates)

— Strong growth in commercial loans relative to consumer loans (that tend to have longer duration) has 

further increased the asset sensitivity

• We estimate that banks will likely need to add duration in the coming years as the rate cycle 

matures

— Banks have started to add duration recently as rates have risen 

— We estimate that banks will need to add an additional 1-2 years of duration of equity in the next few years

• We estimate one year of DoE for the top 100 banks equates to $750bn five year note dv01 

equivalents*
Overall Treasury demand highly dependent 

on the economic and rate regime

20

Tightening Regimes

Trough Level Change (bps)*

Tightening Cycle Fed Funds Index 

OAS

Fed 

Funds 2yr UST 5yr UST 10yr UST

Feb 1994 – Feb 1995 3.00 (31) 300 403 333 287 

Jun 2004 – Jun 2006 1.00 (150) 425 382 259 193 

Dec 2015 – Current 0.25 (36) 175 204 200 175 

Average 1.42 (72) 300 330 264 218 

Easing Regimes

Trough Level Change (bps)**

Easing Cycle Fed Funds Index 

OAS

Fed 

Funds 2yr UST 5yr UST 10yr UST

Jul 1990 – Mar 1991 8.25 27 (525) (537) (449) (390)

Mar 2001 – Nov 2001 6.50 47 (550) (493) (388) (277)

Dec 2007 – Jun 2009 5.25 222 (500) (483) (447) (373)

Average 6.67 99 (525) (504) (428) (347)

Source: Bloomberg, Index OAS is for Bloomberg Barclays Aggregate Index (Monthly data prior to 2000) 

* Trough-to-Peak calculated over 6 months prior to first FF hike through 36 months after last FF hike for UST

and 18 months prior for Index OAS (Peak-to-Trough)

** Peak-to-Trough calculated over 6 months prior to start of NBER defined recession through 36 months after

the end of NBER defined recession for UST and 18 months prior for Index OAS (Trough-to-Peak)

• Treasury demand tends to be very pro-cyclical in 

the later stages of an expansion and the early 

stages of an economic slowdown

• Treasury demand starts to pick-up as the rate cycle 

matures and well before the start of an easing cycle

— Long-end Treasury yields tend to peak before short-end 

and intermediate Treasury yields

— Treasury OASs tend to bottom-out even sooner

• Yields fall and spreads widen when the economy 

slows indicating an increase in Treasury demand

• Intermediate Treasuries tend to lead the rally in the 

early stages of a downturn and then hand off the 

baton to the short-end once the Fed starts easing 

0

50

100

150

200

250

300

350

400

May 2000 - Jan 2001* Jan 2001 - Sep 2002** Jun 2006 - Sep 2007* Sep 2007 - Jun 2009**

bps Interest Behavior Around Recent Economic Slowdowns; Yield Declines

1yr UST 2yr UST 5yr UST 10yr UST 30yr UST

Source: Bloomberg, U.S. Department of Treasury

* Change from date of peak in 5yr UST in period 24 months prior to NBER defined recession to 1st Fed Funds easing before NBER defined recession

** Change from 1st Fed Funds easing before NBER defined recession to 18 months after the NBER defined recession start
Relative value picture in Treasuries is mixed

21

0

50

100

150

200

250

300

0

100

200

300

400

500

600

700

Treasury OAS (bps)

Recession_Shade Corporate_OAS (LHS) AGG_OAS (RHS)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

10yr ACM Term Premium

Recession_Shade 10yr ACM TP

Source: Bloomberg

• Term premiums and overall yield levels remain unattractive

— Cyclically-adjusted term premium is quite low compared to the past

• However, Treasuries look cheap relative to other spread product (tight spread 

levels)

• We expect Treasury demand to increase in the coming years

— Money manager performance YTD would indicate under-weights in Treasuries

— Banks portfolios will continue shift asset mix towards Treasuries as well
Expected Treasury demand and preferred 

habitat along Treasury curve

22

Source: Banks’ 10Qs

US Treasury & Government Agencies:

Contractual Maturity Distribution (% of Carrying Value)

As of: 3/31/2018 <= 1 Year

>1 Year;

<= 5 Years

>5 Years;

<= 10 Years > 10 Years

Estimated WAL

(years)

Estimated Total WAL (years) 0.5 3.0 7.5 12.0 4.1

Total (%) 9.3 64.3 23.4 3.0 100

Total ($mm) 36,215 245,355 89,914 10,786 382,270

• Bank demand has historically favored Treasuries in the short-tointermediate part of the curve and intermediates will continue to be a 

significant portion of new demand 

• Low term premiums will discourage demand for long term Treasuries and 

they will likely remain a small portion of the overall bank holdings

• Treasury bills are expected to play an increasingly important role in 

liquidity management as fed balances decline 

• Bank demand for T-bills is likely to increase in the coming years
• Policy tightening and lackluster deposit growth likely to increase deposit 

betas

— Betas typically tend to rise as the rate cycle progresses

— This behavior might be further exacerbated by the expected decline in “non-core” 

deposits

— Betas could also be impacted by the digital disruption and the move towards 

mobile banking

• A larger than expected rise in deposit betas could reduce bank duration 

needs 

• GSE reform and introduction of an UMBS pass-through security

— Any adjustment in the HQLA classification of the new security could impact 

demand for both MBS and Treasuries

• LIBOR reform efforts may reduce reliance on the interest rate swaps 

market and may result in increased Treasury demand

Other factors relevant to future Treasury demand

23
Appendix

24
Glossary

25

• LSAP – Large Scale Asset Purchases

• SOMA – System Open Market Account

• LCR – Liquidity Coverage Ratio

• Cash – very liquid cash like assets, including interest-bearing deposits at the Fed and other central banks

• Fed balances – interest bearing reserve balances held at the Federal Reserve

• Central Bank balances – balances held at the Federal Reserve and foreign central banks (cash and noninterest bearing deposits are also included for purposes of this analysis)

• Non-core Deposits – deposits we project will decline as the Fed balance sheet normalizes 

• Core Deposits – deposits we project that banks will maintain as the fed balance sheet normalizes

• LCR Banks/BHCs – Bank holding companies (BHCs) with assets greater than $50bn which are subject to 

regulatory liquidity guidelines

• GSIBs – global systemically important banks 

• CIC – Currency in Circulation

• HQLA – High Quality Liquid Assets, net of haircuts and eligibility criteria

• Level 1 – Central Bank Balances, Treasuries, and other government guaranteed securities 

• Level 2A – Agency securities

• Level 2B – Non-Financial Corporates (not counted towards HQLA in this analysis)

• Level 3 – All securities not classified as Level 1, Level 2A or Level 2B

• CAGR – Compound Annual Growth Rate
Fed SOMA balance sheet: median, large, and small 

balance sheet scenarios

26

Source: SOMA projection annual report

 SOMA Balance Sheet Projection Methodology: 

– 2017 are year-end historical balances

– Total Assets are reduced by yearly Agency MBS and Treasury securities run-off amount, estimates of Agency MBS and Treasury run-off are from Citi Research

– Total Liabilities are reduced by yearly Agency MBS and Treasury securities run-off amounts

– Required Reserves are assumed to grow at 2% per year

– Excess Reserves are reduced yearly by Excess Reserve run-off amount 

– Other Liability is comprised of Reverse Repurchase Agreements, US Treasury General Account (TGA) and Other Liabilities

– Currency growth is assumed to be 6% per year

Median Federal Reserve Balance Sheet Projection ($bn), $613bn Total Fed Reserves, Total Reserves Runoff $1,631bn 

Year End

Total 

Assets 

Agency MBS 

Runoff TRSY Runoff 

Total 

Runoff 

Total 

Liabilities 

Excess 

Reserves 

Req 

Reserves 

Total 

Reserves Currency 

Other 

Liability Equity 

Ex Reserve 

Runoff 

2017 4,449 12 18 30 4,407 2,121 124 2,244 1,612 551 41

2018 4,062 158 229 387 4,020 1,621 124 1,745 1,709 567 41 500

2019 3,606 185 271 456 3,564 1,121 127 1,247 1,811 506 41 500

2020 3,258 166 182 348 3,216 821 129 950 1,920 346 41 300

2021 2,934 151 173 324 2,892 481 132 613 2,035 244 41 340

1,515 1,640

Small Federal Reserve Balance Sheet Projection ($bn), $406bn Total Fed Reserves, Total Reserves Runoff $1,838bn

Year End

Total 

Assets 

Agency MBS 

Runoff TRSY Runoff 

Total 

Runoff 

Total 

Liabilities 

Excess 

Reserves 

Req 

Reserves 

Total 

Reserves Currency 

Other 

Liability Equity 

Ex Reserve 

Runoff 

2017 4,449 12 18 30 4,407 2,121 124 2,244 1,612 551 41

2018 4,062 158 229 387 4,020 1,621 124 1,745 1,709 567 41 500

2019 3,606 185 271 456 3,564 1,121 127 1,247 1,811 506 41 500

2020 3,258 166 182 348 3,216 621 129 750 1,920 546 41 500

2021 2,934 151 173 324 2,892 274 132 406 2,035 451 41 347

1,515 1,847

Large Federal Reserve Balance Sheet Projection ($bn) $1,000bn Total Fed Reserves, Total Reserves Runoff $1,244bn

Year End

Total 

Assets 

Agency MBS 

Runoff TRSY Runoff 

Total 

Runoff 

Total 

Liabilities 

Excess 

Reserves 

Req 

Reserves 

Total 

Reserves Currency 

Other 

Liability Equity 

Ex Reserve 

Runoff 

2017 4,449 12 18 30 4,407 2,121 124 2,244 1,612 551 41

2018 4,062 158 229 387 4,020 1,621 124 1,745 1,709 567 41 500

2019 3,606 185 271 456 3,564 1,121 127 1,247 1,811 506 41 500

2020 3,258 166 182 348 3,216 871 129 1,000 1,920 296 41 250

1,191 1,250
Projecting balance sheet evolution for LCR BHCs

• Projecting the key balance sheet metrics 

— Loans, other securities, other assets, core deposits, other liabilities and equity projected using 2012-2017 

CAGRs

— Excess reserves are projected based on scenarios provided in the SOMA projection annual report

— We project a certain portion of bank deposits (“non-core” deposits) decline as a function of excess reserve 

reduction using a simple beta (“flow-through rate”)

— Fed balances at LCR BHCs are modeled to be 50% of overall excess reserves on the Fed balance sheet. 

Central Bank balances also include balances held at foreign central banks which are assumed to be held 

constant

• Total net outflows key metrics

— Deposit balances are segmented into key LCR deposit categories – retail, wholesale operational and 

wholesale non-operational, based on disclosed starting balance for GSIBs and a proxy segmentation for nonGSIBs

• Each LCR deposit category is further segmented into core and non-core 

— Core deposit balances are projected to grow at stated CAGR and non-core deposit balances decline 

proportionally by category to the total non-core deposit decline 

— Net deposit outflows are projected by applying LCR outflow rates for each deposit category to the projected 

deposit balances in each category 

— Other Net Outflows are projected using a simple CAGR linked to loan growth

• Total HQLA key metrics

— Projected HQLA calculated using projected Fed and securities balances with prescribed LCR haircuts and 

disclosed/proxy eligibility criteria

• Pro-forma balance sheet to rebuild HQLA

— New HQLA is funded by issuing term debt and investing in Treasuries

27
Base case assumptions

28

Assumption GSIBs NonGSIBs Comment

Growth Rates

Non-Treasury Securities 3.2% 2012-2017 CAGR

Loans 5.0% 2012-2017 CAGR

Other Assets 0.9% 2012-2017 CAGR

Core Deposits 4.4% 2012-2017 CAGR

Other Liabilities 1.4% 2012-2017 CAGR

Equity 4.7% 2012-2017 CAGR

Impact of LSAP unwind

Flow-through rate 50%

Split of deposit run-off 80% 20%

Proportion of run-off in retail 5%

Proportion of run-off in wholesale 95%

Operational Split of wholesale run-off 25%

Non-operational Split of wholesale run-off 75%

Starting Deposit Mix

Retail 50.3% 63% GSIBs from disclosures/SNL Financial

Wholesale – Operational 26.4% 18% GSIBs from disclosures/SNL Financial

Wholesale – Non-operational 19.7% 15% GSIBs from disclosures/SNL Financial

Other 3.6% 4%

Deposit Outflow Rates

Retail 9.4% 5% GSIBs from disclosures

Wholesale – Operational 24.9% 25% GSIBs from disclosures

Wholesale – Non-operational 59.9% 50% GSIBs from disclosures

Other 0.0% 0.0%

Other Outflow Growth Rates

Other Net Outflow Growth Rate 4%
References

29

Choi, Dong Beom and Hyun-Soo Choi (2016). “The Effect of Monetary Policy on Bank 

Wholesale Funding”, FDIC, September 2016.

Federal Reserve Bank of New York. “Projections for the SOMA Portfolio and Net Income,” July 

2017.

Federal Reserve Bank of New York. “Quarterly Trends for Consolidated U.S. Banking 

Organizations,” Fourth Quarter 2017.

Fitzgerald, Conor, Richard Ramsden, Ryan M. Nash, and Will Nance (2017). “The impact of 

the Fed reducing its balance sheet on the financial system”, Goldman Sachs Global 

Investment Research, June 19, 2017.

Horowitz, Keith (2014). “Impact of QE on US Banks: Playing “Where’s Waldo?” with >$2.5 

trillion of QE deposits,” Citi Research, December 14, 2014.

Ihrig, Jane, Lawrence Mize, and Gretchen C. Weinbach (2017). “How does the Fed adjust its 

Securities Holdings and Who is Affected?,” Finance and Economics Discussion Series 2017-

099. Washington: Board of Governors of the Federal Reserve System, 

https://doi.org/10.17016/FEDS.2017.099.

Roever, Alex, Teresa C. Ho, Ryan J. Lessing (2017). “Unreserved: The impact of the Fed’s 

unwind on the money markets”, J.P. Morgan Research, November 22, 2017.
Evaluate the use of Treasury securities versus the range of housing finance related 

securities (specifically debt and MBS issued by Ginnie Mae, Fannie Mae and 

Freddie Mac) in investment portfolios. Please discuss the extent to which different 

investor types view Agency debt and MBS as substitutes for Treasury securities. 

How do investors determine the premium required to invest in Agency debt and 

MBS compared to Treasuries? How have different policy changes or market 

conditions affected this premium over the years? What policy changes or market 

conditions could affect this premium?

TBAC Charge: Housing Finance Related Securities

1
• Housing related securities are less liquid and are exposed to a range of risk factors which 

do not affect U.S. Treasuries. Investors are compensated for these differences in liquidity 

and risk through excess yield and return compared to U.S. Treasuries. These differences 

make agency MBS only weakly substitutable with U.S. Treasuries.

• Heavy UST supply and conservatorship reduced the spread over Treasuries associated 

with GSE debentures and MBS securities. Declining UST term premia suggests the 

increase in demand for safe assets post-crisis has been more than sufficient to meet the 

additional supply of U.S. Treasuries. Excess demand has been driven primarily by foreign 

investors and large-scale asset purchases (LSAP) by the Federal Reserve, and to a lesser 

extent bank regulation.

• The risks associated with a change in U.S. government’s commitment to GSE MBS are 

asymmetric:

- Withdrawal of government support could potentially cause a substantial increase of 

spread premia for housing related securities.

- Extending a full faith and credit guarantee and HQLA Level 1 status to agency MBS 

would likely cause a realignment of GNMA and agency MBS spreads, but US Treasury 

term premia will likely not be materially impacted. 

Executive Summary

2
MBS Risk Characteristics

Agency MBS are Weakly Substitutable with US Treasuries Due to Differences in Risk

Negative convexity causes prices and risk to move with rates 

in a way that adversely affects MBS investors.

Rising 

Rates

Losses & 

Duration 

Extension

Increased 

Risk

Risk 

Aversion

Negative convexity can amplify interest rate volatility, and 

increase expected returns of USTs and MBS over short 

horizons.

UST Yield / Duration Risk

Option Cost

Convexity / Volatility Risk

Option Adjusted Spread

Prepay / Credit / Liquidity Risk

MBS yield premia to US Treasuries can be attributed to convexity, 

prepay, and to a lesser extent credit and liquidity risk.

MBS are callable bonds and have a negatively convex 

price/yield relationship.

3

Sources: Bloomberg, Bloomberg Barclays Index data, Bank of America

Substitutability / Risk Premia
Convenience Yield of US Treasuries

To explain the existence of a convenience yield, Krishnamurthy and Vissing-Jorgensen (2012)1 cite several unique 

characteristics of USTs which do not apply to MBS even with a full faith and credit guarantee.

• MBS are subject to prepayment and convexity risk, 

which require extensive expertise to understand. It is 

unlikely that investors lacking this expertise will see 

MBS as a substitute for UST.

• “Suppose that some investors face costs of 

understanding investment in risky assets... These 

investors will have a unique demand for riskless assets, 

driving up the price of riskless assets.”3

• Conventional and GNMA MBS are accepted as collateral 

for certain derivatives transactions, but haircuts are 

often higher than for UST regardless of government 

guarantee status.

• “There is a substantial demand for collateral for 

purposes of mitigating counterparty risk in derivatives 

and settlement systems. The collateral in these 

transactions is required to be extremely safe, thus also 

driving the demand for a safety attribute.” 3

1Krishnamurthy, Arvind and Annette Vissing-Jorgensen, “The Aggregate Demand for Treasury Debt”, Journal of Political Economy, Vol. 120, No. 2 (April 2012), pp. 233-267. 

http://faculty.haas.berkeley.edu/vissing/demandtreas_jan6.pdf

• The timing of MBS cash flows is uncertain, and average 

maturity can vary widely with interest rates2. The use of 

MBS to match longer dated liabilities would be 

problematic.

• “[Some investors] have a special demand for certain 

long-term payoffs to back long-term nominal 

obligations”

3

:

• Defined benefit pension funds

• Insurance companies

• Municipalities collateralizing their own debt 

issuance

2A more stable average maturity profile can be achieved through CMO structuring, but at a substantial cost to liquidity.

3Emphasis added.

4

Substitutability / Risk Premia
US Treasury

Total

On-the-Run 

UST

Off-the-Run 

UST

TIPS GNMA MBS

Conventional 

MBS

Agency

Debentures Corporates

Liquidity

Balance 

Outstanding ($T) 14.93 0.42 13.2 1.3 1.83 4.56 1.91 9.07

Daily Trading 

Volume ($B)1

559.7 361.3 180.7 17.7 52.1 182.1 2.9 34.4

Turnover Ratio2 27 1 73 73 35 25 659 264

% of Repo Market 

Collateral3

~50% ~28% ~2% ~5%

CME Collateral

Haircut4

1%-6% 1%-6% 1%-6% 1%-6% 11% 11% 3.5% 20%

HQLA Status / 

Contribution % Level 1 / 100% Level 1 / 100% Level 1 / 100% Level 1 / 100% Level 1 / 100% Level 2A / 85% Level 2A / 85% Level 2B / 50%

Risk

B3S Risk Weight5 0% 0% 0% 0% 0% 20% 20% 20%/100%

Government

Support

Explicit Explicit Explicit Explicit Explicit Conservatorship Conservatorship N/A

Principal 

Repayment Timing

Certain / 

4w-30Y

Certain / 

4w-30Y

Certain / 

4w-30Y

Certain / 

5Y, 10Y, 30Y

Uncertain / 

WAL ~2Y- 11Y

Uncertain / 

WAL ~2Y- 11Y

Certain / 

WAL ~5Y6

Certain / 

WAL ~10Y6

Duration Risk        

Prepay Risk  

Credit Risk   

Liquidity Risk       

Convexity Risk   6 6

1) On-the-Run / Off-the-Run UST trading volume split is assumed to be 2/3 On-the-Run and 1/3 Off-the-Run (https://www.treasury.gov/press-center/press-releases/Pages/sm0222.aspx).

2) Turnover Ratio is defined as Balance Outstanding / Daily Trading Volume.

3) June 2018 Fedwire-eligible and non-eligible Triparty Repo data from SIFMA.

4) UST collateral haircuts vary by tenor as follows: 0-1Y (1%), 1-3Y (2%), 3-5Y (3%), 5-10Y (4.5%), and 10-30Y (6%).

5) Corporate B3S risk weight is 20% for US depository institutions and 100% for US non-depository institutions.

6) Agency Debentures and Corporate bonds are often callable, exposing investors to convexity risk and uncertainty of principal repayment timing. 5

Sources: SIFMA, CME, Federal Reserve Bank of St. Louis Economic Research

Liquidity and Risk Characteristics Summary Substitutability / Risk Premia
Historical Performance of Housing Related Securities

Historically, housing related securities have produced significant excess returns to US Treasuries. They have also exhibited large 

drawdowns to US Treasuries, notably during the financial crisis. 

Ex-post realized returns are far more volatile than ex-ante measures of expected return such as Option adjusted spread (OAS).

6

Sources: Bloomberg Barclays Index data

Historical Performance
Issuance Patterns

Housing Security Growth has Lagged US Treasury and Corporate Growth

US Treasury and Corporate supply has grown significantly post-crisis

USTs and MBS trade volumes are much higher than other sectors. The private sector has absorbed the majority of UST net issuance 

while the Fed has absorbed a significant portion of MBS net issuance.

Agency Debt and Non-Agency / 

ABS have declined and Agency 

MBS has held relatively steady.

7

Sources: SIFMA, Federal Reserve Bank of St. Louis Economic Research. Note: Private ownership excludes Fed holdings

...in absolute terms and, in the case of UST, as a percent of GDP.

Supply Trends
coeffcients p-values coeffcients p-values

const 0.09 0.34 0.17 0.04

Log([Debt - Fed] / GDP) -1.10 0.00 -0.82 0.00

(Index Cpn - Current Cpn)2 0.08 0.04 0.18 0.00

OLS Regression Results

GNMA FNMA

1989-2018 (R2: 34.21%) 1989-2018 (R2: 23.04%)

Supply Effects: Convenience Spread

Extension of Krishnamurthy & Vissing-Jorgensen (2012)1

• Krishnamurthy & Vissing-Jorgensen (2012) show that UST 

Debt / GDP is a significant driver of the premium 

commanded by safe and liquid assets.

• Extending this analysis to FNMA and GNMA OAS shows UST 

Debt / GDP is a significant driver of both.

• The fact that the GNMA and FNMA coefficients are similar 

suggests the OAS is primarily driven by liquidity rather than 

safety considerations.

• Since OAS is unlikely to fall below zero, we expect further 

compression due to additional supply to be limited.

A

A

B

B

1Krishnamurthy, Arvind and Annette Vissing-Jorgensen, “The Aggregate Demand for Treasury Debt”, Journal of Political Economy, Vol. 120, No. 2 (April 2012), pp. 233-267. 

http://faculty.haas.berkeley.edu/vissing/demandtreas_jan6.pdf 8

A B

- Regressions are run on monthly data

- In calculating p-values, we compensated for serial correlation in the residuals

- The square of MBS coupon is a proxy for prepayment risk, so we include it as a control 

variable in the same way Krishnamurthy and Vissing-Jorgensen control for expected loss 

and credit risk premia in regressions on corporate bond spreads.

Supply Trends
Time Range R-Squared Constant 

Coefficient

MWD/GDP 

Coefficient

Constant 

P-value

MWD/GDP 

P-value

1/1/1970 - 12/31/2008 0.09.0736 -4.08 2.76 0.26 0.02

1/1/1980 - 6/30/2018 0.022 -1.55 1.87 0.84 0.38

1-year Rolling UST 10y Excess Return vs.

 Maturity Weighted UST Debt / GDP

OLS Regression Results

Supply Effects: Term Premia and Excess Returns

Update of Results Based on Greenwood & Vayanos (2014)1

• Greenwood & Vayanos (2014) argue that shocks to the 

supply and maturity structure of government debt alter the 

price of duration risk. Using data from 1916-2007, they find 

a strong positive relationship between maturity weighted 

debt / GDP and both current UST yields and future UST 

excess returns. We reproduce their results over a shorter 

window of data. 

• However, this relationship seems to have broken down after 

the financial crisis. 

• It seems likely that the post crisis supply shock has been 

offset primarily by surging foreign sector demand and LSAP, 

and to a lesser extent post crisis regulation.

A

B

1Greenwood, Robin, and Dimitri Vayanos. "Bond Supply and Excess Bond Returns." Review of Financial Studies 27, no. 3 (March 2014): 663–713.

https://dash.harvard.edu/bitstream/handle/1/12748550/greenwood,vayanos_BSEBR_RSFf.pdf 9

2Regression terminating in 2008 has UST return increasing 0.31 std dev for each 1 

std dev increase in MWD/GDP. Regression terminating in 2018 has UST return 

increasing 0.22 std dev for each 1 std dev increase in MWD/GDP.

2

A

A

B

C

C

B

Supply Trends

Sources: Federal Reserve Z1 Report
• Domestic public holdings have grown as a % of total issuance as 

Fed LSAPs have more than offset the decline in GSE holdings.

• GSEs actively hedge the convexity of their MBS holdings, 

leading to higher levels of interest rate volatility. Thus, as 

their MBS holdings have declined, the net impact has 

been to decrease interest rate volatility.

• Banks and the Fed, on the other hand, are generally not 

active convexity hedgers. As their respective MBS 

portfolios have grown, this has produced a dampening 

impact on interest rate volatility, and has contributed to 

lower rates and tighter mortgage spreads.

• Fed runoff will accelerate in the second half of 2018, requiring 

additional market participation from other investors.

MBS Investor Universe and Trends

The Fed Facilitated a Large Private to Public Risk Transfer Post-Crisis but is Now Tightening

A

A

A

B

B

10

Sources: BAML Research, Federal Reserve Bank of New York

Demand Trends
MBS Investor Universe and Trends

Money Managers are Well Positioned to Add MBS into Fed Runoff

• Money manager holdings of MBS relative to corporate 

holdings have shrunk dramatically since the crisis. As a 

result, they are well positioned to reallocate back into 

mortgages and absorb a significant portion of the Fed 

portfolio runoff.

• Since the crisis, corporates have outperformed MBS, but are 

more susceptible to large drawdowns.

• Corporates have significantly outperformed MBS since 

2012, creating a potentially attractive opportunity to 

rebalance into MBS to improve liquidity and limit drawdown 

risk.

A

A

B

B

C

C

A

11

Sources: BAML Research, Federal Reserve Z1 Report, Bloomberg Barclays Index data 

Demand Trends
• US Treasuries have steadily richened since the financial crisis in 

spite of rapidly growing supply of UST and GNMA MBS.

• A large portion of the net issuance in USTs post-crisis 

was absorbed by foreign investors. This increase in 

demand helps explain the disconnect between supply 

and term premium.

• Between Q4 2007 and Q1 2018, the fixed income universe 

grew by $13T, and HQLA Level 1 assets grew by $11.8T. 

• In contrast, extending the FFC guarantee to conventional MBS 

would only increase the stock of FFC guaranteed assets by 

~$4.5T, and would have no impact on the amount of interest 

rate risk borne by investors or the amount of private sector 

balance sheet required. 

A

A

B

$11.8T

$4.5T

C

C

12

B

Full Faith and Credit Guarantee Extending FFC Guarantee to Agency MBS

Applying a full faith and credit guarantee to conventional MBS is unlikely to have a material impact on UST pricing

D

D

Sources: SIFMA, Bloomberg, Federal Reserve Z1 Report

Note: Sovereign supply calculated using Bloomberg Barclays Index data which excludes Treasury securities 

with less than 1 year to maturity as well as Fed holdings of UST and GN MBS
• GNMA and FNMA MBS exhibited similar excess returns to 

US Treasuries from 1990-2007.

• Conventional MBS richened relative to GNMA after the GSEs 

entered conservatorship in 2008.

• Since the announcement of the LCR rule in October 2013, 

GNMA actual and expected excess returns have 

underperformed FNMA significantly.

A

B

C

• GNMA MBS remain somewhat rich relative to FNMA MBS in 

the post-conservatorship, post-LCR regime.

• Conservatorship was a significant step toward 

equalizing the credit quality of conventional and 

GNMA MBS. This suggests that the elevated spread 

between conventional and GNMA during the postcrisis era was due primarily to HQLA status rather 

than credit quality considerations.

• Assuming HQLA Level 1 status accompanies a FFC 

guarantee for conventional MBS, it would likely 

result in a realignment between GNMA and 

conventional OAS. The FNMA – GNMA OAS spread 

may fall to or below zero given the superior liquidity 

characteristics of the conventional MBS market.

• Government support for conventional MBS is already priced 

in to a great extent, as evidenced by the proximity of OAS to 

the effective zero lower bound (see slides 6 and 8). 

Explicitly removing this support would likely be very 

disruptive for credit markets and the housing sector.

D

A

B

C

D

13

Sources: Bloomberg Barclays Index data 

Full Faith and Credit Guarantee Extending FFC Guarantee to Agency MBS

Applying a full faith and credit guarantee to conventional MBS could cause GNMA and conventional OAS to realign

FN Rich / GN Cheap GN Rich / FN Cheap
HQLA Status and Bank Asset Allocation

MBS / AFS

MBS/HTM

UST / HTM

UST / AFS

It is unlikely that applying Level 1 HQLA1status to 

conventional MBS would cause banks to allocate out of US 

Treasuries into conventional MBS. Risk considerations are 

the binding constraints for banks to increase allocations to 

MBS out of USTs. 

• Currently bank allocations to MBS (as a % of total assets, 

less cash) are at multi-year highs.

• Banks have increased HTM allocations with the inclusion 

of AOCI in CET1, an indication that they are becoming 

increasingly concerned about capital risk.

• However, portfolio liquidity requirements will limit 

further increases in HTM holdings.

• In aggregate, banks currently have nearly $600B in unused 

Level 2A cap capacity, meaning that banks could add 

conventional MBS today and receive 85% credit toward 

HQLA.

A

A

B

B

C

C

1 Level 1 assets contribute to banks’ HQLA with no haircut, and there is no cap on the amount for which a bank may receive credit. Level 1 assets include cash, US Treasuries and GNMA MBS.

Level 2A assets such as conventional MBS contribute to HQLA with a 15% haircut, and are capped at 40% of a banks’ total HQLA assets. Any holdings beyond the 40% receive no credit toward HQLA.

14

Sources: BAML Research, JPM Research, Fed H8 release

HQLA Status
R-Squared Constant 

Coefficient

Volatility 

Coefficient

Volume 

Coefficient

Constant 

P-value

Volatility 

P-value

Volume 

P-value

0.35 5.9 1.4 -0.0306 0.000 0.000 0.000

OLS Regression Results

MBS Bid-Offer Spread vs. Volatility and Trading Volume

• Federal Reserve volume data shows a clear positive 

relationship between outstanding float and trading volumes 

for MBS.

• UMBS will effectively combine the outstanding float of 

FNMA and FHLMC; the uniform TBA will likely have higher 

trading volume than either FNMA or FHLMC individually.

• Almgren, Thum, Hautpmann and Li (2005)1 estimate that 

market impact cost of trading is inversely proportional to 

average trading volume, so costs should be lower as volume 

increases.

• The inverse relationship between trading volume and bidoffer spreads formulated by Almgren et al is also evident in 

data from a 2014 Federal Reserve study2.

• Regression analysis on this data set confirms higher trading 

volume is a significant predictor of lower bid-offer spreads.

• A one standard deviation increase in trading 

volumes results in a 0.43 standard deviation 

reduction in bid-offer spreads.

MBS Liquidity Characteristics

Agency MBS have similar liquidity to USTs; UMBS should lower bid-offer spreads

A

B

B

A

1Almgren, Robert, C. Thum, E. Hauptmann, and H. Li. Direct Estimation of Equity Market Impact. Risk, 2005. http://www.cims.nyu.edu/~almgren/papers/costestim.pdf.

2Campbell, Sean D., Canlin Li, and Jay Im (2014). "Measuring Agency MBS Market Liquidity with Transaction Data," FEDS Notes. Washington: Board of Governors of the 

Federal Reserve System, January 31, 2014. https://doi.org/10.17016/2380-7172.0007

C

C C

UMBS

15
Appendix: Agency MBS Investor Types

Objectives Risk Considerations Key Constraints Net Impact

GSEs

Support pricing and liquidity 

for their MBS products

Earn arbitrage profit on a 

hedged portfolio of MBS

Capital risk (primarily spread 

and convexity)

Liquidity

Caps instituted under 

conservatorship agreements

Tighter MBS spreads and lower spread 

volatility

Higher interest rate volatility due to 

convexity hedging

Impact greatly diminished post crisis due to 

portfolio downsizing 

The Federal Reserve Lower borrowing costs by 

reducing rates and spreads

Avoid unnecessary market 

disruption (unintended value 

distortions, funding stress, 

diminished liquidity)

US Treasury and Agency 

Securities

Lower rates and tighter spreads

Lower interest rate volatility due to reduced 

convexity in private portfolios

Tighter roll markets

Banks

Maintain a liquidity buffer

Hedge deposit liabilities

Diversify credit sensitive 

assets.

Earn yield & interest margin

ROE and ROA

Capital risk (interest rate, 

convexity, spread risk)

HQLA Value

Asset monetization costs

RWA capital requirements

LCR

SLR

Lower rates and tighter spreads

Lower interest rate volatility

Tighter roll markets

Tighter GNMA – conventional spreads

REITs

Earn arbitrage profit on a 

hedged portfolio of MBS

ROE, ROA

Capital risk (interest rate, MBS 

spread, convexity)

Funding risk

Liquidity

Mortgage-related assets only

Leverage / haircuts

Tighter MBS 

Higher interest rate volatility due to 

convexity hedging

16
Appendix: Agency MBS Investor Types (Continued)

Objectives Risk Considerations Key Constraints Net Impact

Asset Managers

Index matching

Total return

Underperformance / index 

tracking (interest rate risk, 

convexity, spread risk, relative 

value)

Liquidity (meeting 

redemptions)

Various fund-dependent 

constraints (e.g., Govt only, 

long only, limited leverage)

Tighter MBS spreads and lower spread 

volatility

Lower interest rate volatility

Insurance

Income

Total return

Asset-liability matching

Capital risk (interest rate, MBS 

spread, convexity)

Liquidity

Various insurance-related 

regulations

Tighter MBS spreads and lower spread 

volatility

Lower interest rate volatility

Overseas

Maintain liquid currency 

reserves

Income

Total return

Currency carry arbitrage

Currency

Credit (prefer full faith and 

credit)

Interest rate / convexity /MBS 

spread

Funding

Liquidity

Various (sovereign wealth 

constraints, insurance 

regulation, bank regulation)

Lower interest rates and MBS spreads

Lower volatility (rates and spreads)

Tighter GNMA – conventional spreads

17