Treasury Presentation to TBAC
Office of Debt Management

Fiscal Year 2017 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. Eleven 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. SOMA Normalization Impact on Net Marketable Borrowing p. 19

IV. Portfolio Metrics

A. Weighted Average Maturity of Marketable Debt Outstanding with Projections p. 23

B. Maturity Profile p. 24

V. Demand

A. Summary Statistics p. 29

B. Bid-to-Cover Ratios p. 30

C. Investor Class Awards at Auction p. 35

D. Primary Dealer Awards at Auction p. 39

E. Direct Bidder Awards at Auction p. 40

F. Foreign Awards at Auction p. 41
Section I:

Executive Summary

3
Receipts and Outlays

• Fiscal year-to-date, total receipts are up by 2 percent driven mainly by individual income and payroll taxes which increased by $65 

billion. 

• Fiscal year-to-date, total outlays are up by 6 percent driven mainly by an increase of $102 billion over these 4 categories: Health and 

Human Services (HHS),Treasury outlays for inflation accruals, Social Security Administration (SSA), and Education.

Sources of Financing 

• Based on the Quarterly Borrowing Estimate, Treasury’s Office of Fiscal Projections currently projects a net marketable borrowing need 

of $96 billion for Q4 FY 2017, with an end-of-September cash balance of $60 billion. For Q1 FY 2018, the net marketable borrowing need 

is projected to be $501 billion, with an end-of-December cash balance of $360 billion.

Projected Net Marketable Borrowing

• Treasury continues to analyze and model various scenarios to address potential funding needs based on deficit forecasts and 

expectations for SOMA Treasury redemptions.

• Assumptions include full SOMA reinvestments until October 2017, followed by SOMA capped redemptions until the second half of 

2021. These assumptions are based on the June FOMC addendum to the Policy Normalization Principles and Plans and expectations 

from the FRB-NY June 2017 Survey of Primary Dealers and the July projections for the SOMA portfolio. 

Highlights of Treasury’s August 2017 Quarterly Refunding Presentation

to the Treasury Borrowing Advisory Committee (TBAC)

4
Section II:

Fiscal

5
6

Source: United States Department of the Treasury 

(50%)

(40%)

(30%)

(20%)

(10%)

0 %

10%

20%

30%

40%

50%

60%

Jun-07

Sep-07 Dec-07 Mar-08 Jun-08Sep-08 Dec-08 Mar-09 Jun-09Sep-09 Dec-09 Mar-10 Jun-10Sep-10 Dec-10 Mar-11 Jun-11Sep-11 Dec-11 Mar-12 Jun-12Sep-12 Dec-12 Mar-13 Jun-13Sep-13 Dec-13 Mar-14 Jun-14Sep-14 Dec-14 Mar-15 Jun-15Sep-15 Dec-15 Mar-16 Jun-16Sep-16 Dec-16 Mar-17 Jun-17 Year-over-Year % Change

Quarterly Tax Receipts

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

2 0

4 0

6 0

8 0

100

120

140

Jun-07 Oct-07 Feb-08 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 $ bn

Monthly Receipt Levels

(12-Month Moving Average)

Individual Income Taxes Corporation Income Taxes Social Insurance Taxes Other
0

100

200

300

400

500

600

700

800

900 HHS SSA Defense Treasury

Agriculture Labor V A Transportation OPM Education Other Defense Civil $ bn

Eleven Largest Outlays

Oct - Jun FY 2016 Oct - Jun FY 2017

Source: United States Department of the Treasury 8
9 Source: United States Department of the Treasury 

(40)

(30)

(20)

(10)

0

1 0

2 0

3 0 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 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 $ bn

Fiscal Quarter

Treasury Net Nonmarketable Borrowing

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

0

100

200

300

400

500

600

700 October November December January

February March April

May

June

July

August

September $ bn

Cumulative Budget Deficits by Fiscal Year

FY2015 FY2016 FY2017
11

FY 2017-2019 Deficits and Net Marketable Borrowing Estimates In $ billions

Primary 

Dealers1 CBO2 CBO3 OMB4

FY 2017 Deficit Estimate 664 693 693 602

FY 2018 Deficit Estimate 690 563 593 440

FY 2019 Deficit Estimate 789 689 689 526

FY 2017 Deficit Range 559-720

FY 2018 Deficit Range 550-875

FY 2019 Deficit Range 650-980

FY 2017 Net Marketable Borrowing Estimate 544 488 488 426*

FY 2018 Net Marketable Borrowing Estimate 855 881 912 529**

FY 2019 Net Marketable Borrowing Estimate 891 745 748 604

FY 2017 Net Marketable Borrowing Range 373-895

FY 2018 Net Marketable Borrowing Range 550-1130

FY 2019 Net Marketable Borrowing Range 670-1100

Estimates as of: Jul-17 Jun-17 Jul-17 May-17

1Based on primary dealer feedback on July 24, 2017. Estimates above are averages. 

2Summary Table 1 of CBO's "An Update to the Budget and Economic Outlook: 2017 to 2027"

3Table 1 and 2 of CBO's "An Analysis of the President's 2018 Budget"

4Table S-10 of OMB's “Budget of the United States Government, Fiscal Year 2018” 

* OFP's FY 2017 Net Marketable Borrowing Estimate.

**The “Budget of the U.S. Government Fiscal Year 2018” assumes an end-of-September cash balance target of $350 billion. Given 

that OFP’s FY2017 Net Marketable Borrowing Estimate assumes an end-of-September cash balance target of $60 billion, the 

combined FY2017-18 figure would be $290 billion higher in an equivalent comparison.
Projections are from Table 

S-10 of “Budget of The U.S. Government Fiscal Year 2018.” 12

OMB’s Projection

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

0 %

2 %

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)0

200 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 % of GDP $ bn

Fiscal Year

Budget Surplus/Deficit

Surplus/Deficit (LHS) Surplus/Deficit (RHS)
Section III:

Financing

13
14

Assumptions for Financing Section (pages 15 to 20)

• Portfolio and SOMA holdings as of 06/30/2017.

• Full SOMA reinvestments until October 2017, followed by SOMA capped redemptions until the second 

half of 2021. These assumptions are based on the June FOMC addendum to the Policy Normalization 

Principles and Plans and expectations from the FRB-NY June 2017 Survey of Primary Dealers and the 

July projections for the SOMA portfolio. 

• Assumes announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs as of 

06/30/2017, while using an average of ~$1.7 trillion of bills outstanding. 

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

as of 06/30/2017. 

• No attempt was made to match future financing needs. 
15

Sources of Financing in Fiscal Year 2017 Q3

*An end-of-June 2017 cash balance of $181 billion versus a beginning-of-March 2017 cash balance of $92 billion. By keeping the cash 

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

Gross issuance values include SOMA add-ons.

Net Bill Issuance (39) Security Gross Maturing Net Gross Maturing Net

Net Coupon Issuance 7 4 4-Week 640 670 (30) 1,843 1,843 0

Subtotal: Net Marketable Borrowing 3 5 13-Week 507 450 5 7 1,462 1,457 5

26-Week 429 427 2 1,228 1,192 3 6

Ending Cash Balance 181 52-Week 6 0 6 0 (0) 200 170 3 0

Beginning Cash Balance 9 2 CMBs 2 5 9 3 (68) 163 163 0

Subtotal: Change in Cash Balance 8 9 Bill Subtotal 1,661 1,700 (39) 4,896 4,825 7 1

Net Implied Funding for FY 2017 Q3* (54)

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 4 5 4 1 4 130 123 7

2-Year 8 8 5 2 3 6 260 214 4 6

3-Year 8 0 8 7 (7) 233 267 (34)

5-Year 115 132 (17) 340 348 (8)

7-Year 9 5 9 5 (1) 280 291 (11)

10-Year 7 1 2 6 4 5 206 7 1 134

30-Year 4 4 1 6 2 8 128 3 4 9 3

5-Year TIPS 1 6 4 8 (32) 3 0 4 8 (18)

10-Year TIPS 1 2 0 1 2 5 1 2 1 3 0

30-Year TIPS 6 0 6 1 9 0 1 9

Coupon Subtotal 571 496 7 4 1,676 1,417 259

Total 2,232 2,196 3 5 6,572 6,242 330

Coupon Issuance Coupon Issuance

April - June 2017 April - June 2017 Fiscal Year-to-Date

Bill Issuance Bill Issuance

April - June 2017 Fiscal Year-to-Date
16

Sources of Financing in Fiscal Year 2017 Q4

*Keeping announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs as of 06/30/2017. 

**Assumes an end-of-September 2017 cash balance of $60 billion versus a beginning-of-July 2017 cash balance of $181 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** 9 6

Net Coupon Issuance 105

Implied Change in Bills (9)

Security Gross Maturing Net Gross Maturing Net

2-Year FRN 4 2 4 1 1 173 164 8

2-Year 5 5 2 6 2 9 315 240 7 5

3-Year 8 0 8 1 (1) 313 348 (35)

5-Year 7 2 9 6 (24) 412 444 (32)

7-Year 6 0 6 0 (0) 340 351 (11)

10-Year 7 0 2 8 4 2 276 9 9 177

30-Year 4 4 1 1 3 3 172 4 5 126

5-Year TIPS 1 4 0 1 4 4 4 4 8 (3)

10-Year TIPS 2 6 1 7 9 7 6 3 7 3 9

30-Year TIPS 0 0 0 1 9 0 1 9

Coupon Subtotal 464 359 105 2,140 1,777 364

July - September 2017

July - September 2017 Fiscal Year-to-Date

Coupon Issuance Coupon Issuance
17

OMB’s projections of net borrowing from the public are from Table S-10 of “Budget of the U.S. Government Fiscal Year 2018.” Data labels 

represent the change in debt held by the public in $ billions. “Other” represents borrowing from the public to provide direct and guaranteed 

loans.

656

529

604

552

515

493

369

263

229

163

3 5

50%

55%

60%

65%

70%

75%

80%

(700)

(500)

(300)

(100)

100

300

500

700

900 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 $ 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 Net of

Financial Assets as a % of GDP (RHS)

$ bn %

Primary Deficit (1,691) -38.4

Net Interest 5,442 123.5

Other 657 14.9

Total 4,408 100.0

FY2017 - FY2027 Cumulative Total
18

OMB's economic assumption of the 10-Year Treasury Note rates are from Table S-9 of OMB’s “Budget of the United States Government, Fiscal 

Year 2018.” The forward rates are the implied 10-Year Treasury Note rates on June 30 of that year.

1

1.5

2

2.5

3

3.5

4 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1 0-Year Treasury Note Rate, %

Interest Rate Assumptions: 10-Year Treasury Note

OMB FY 2018 Budget Implied Forward Rates as of 06/30/2017

1 0-Year Treasury Rate of 2.27% 

as of 06/30/2017
19

Impact of SOMA Actions on Projected Net Borrowing Assuming Future 

Issuance Remains Constant

Treasury’s primary dealer survey estimates can be found on page 11. OMB's projections of net borrowing from the public are from Table S-10 of 

“Budget of the U.S. Government Fiscal Year 2018.” CBO's estimates of the borrowing from the public are Summary Table 1 of “The Budget and 

Economic Outlook: 2017 to 2027.” See table at the end of this section for details.

*Reflects capped SOMA Treasury redemptions after September 2017 up until the second half of 2021. 

0

200

400

600

800

1,000

1,200

1,400

1,600 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Fiscal Year

With Capped Fed Redemptions ($ bn)*

Projected Net Borrowing CBO's "An Analysis of the President''s 2018 Budget " OMB's FY 2018 Budget of the U.S. Government

PD Survey Marketable Borrowing Estimates OFP's FY 2017 Net Marketable Borrowing Estimate CBO's "An Update to the Budget and

Economic Outlook: 2017 to 2027"
20

Historical Net Marketable Borrowing and Projected Net Borrowing 

Assuming Future Issuance Remains Constant, $ billions

Net Borrowing capacity reflects full SOMA reinvestments until October 2017, followed by SOMA capped redemptions until the second half of 

2021. 

Treasury’s primary dealer survey estimates can be found on page 11. OMB's projections of net borrowing from the public are from Table S-10 of 

“Budget of the U.S. Government Fiscal Year 2018.” CBO's estimates of the borrowing from the public are from Table 1 and 2 of “The Budget and 

Economic Outlook: 2017 to 2027.”

*OFP’s FY 2017 Net Marketable Borrowing Estimate

**The “Budget of the U.S. Government Fiscal Year 2018” assumes an end-of-September cash balance target of $350 billion. Given that OFP’s 

FY2017 Net Marketable Borrowing Estimate assumes an end-of-September cash balance target of $60 billion, the combined FY2017-18 figure 

would be $290 billion higher in an equivalent comparison.

Fiscal 

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

Historical/Projected 

Net Borrowing 

Capacity

OMB's FY 2018 

Budget of the U.S. 

Government

CBO's "An Analysis of 

the President''s 2018 

Budget "

Primary Dealer 

Survey

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 289 (82) 477 64 47 795 

2017 138 9 292 55 8 502 426* 488 544 

2018 0 92 276 55 0 423 529** 912 855 

2019 0 61 101 46 (6) 201 604 748 891 

2020 0 (31) 138 16 (7) 116 552 719 

2021 0 (40) 152 (3) (3) 106 515 747 

2022 0 33 226 (10) 3 253 493 797 

2023 0 27 172 (8) 6 197 369 737 

2024 0 5 160 (9) 0 156 263 694 

2025 0 (28) 164 (51) (1) 84 229 758 

2026 0 (23) 178 (42) (2) 111 163 782 

2027 0 (0) 155 (32) (2) 120 787 
Section IV:

Portfolio Metrics

21
22

Assumptions for Portfolio Metrics Section (pages 23 to 27) and Appendix

• Portfolio and SOMA holdings as of 06/30/2017.

• Full SOMA reinvestments until October 2017, followed by SOMA capped redemptions until the second 

half of 2021. These assumptions are based on the June FOMC addendum to the Policy Normalization 

Principles and Plans and expectations from the FRB-NY June 2017 Survey of Primary Dealers and the 

July projections for the SOMA portfolio.

• Assumes announced issuance sizes and patterns constant for nominal coupons, TIPS, and FRNs as of 

06/30/2017, while using an average of ~$1.7 trillion of bills outstanding. 

• To match OMB’s projected borrowing from the public for the next 10 years, nominal coupon securities 

(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 ZCIS levels 

as of 06/30/2017.

• OMB’s estimates of borrowing from the public are Table S-10 of the “Budget of the U.S. Government 

Fiscal Year 2018.”
23

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

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

4 0

4 5

5 0

5 5

6 0

6 5

7 0

7 5

8 0

8 5

9 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Weighted Average Maturity (Months)

Calendar Year

Weighted Average Maturity of Marketable Debt Outstanding

Historical Adjust Nominal Coupons to Match Financing Needs Historical Average from 1980 to end of FY 2017 Q3

70.8 months on

6/30/2017

59.4 months (Historical Average

from 1980 to Present)
24

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

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

0

2

4

6

8

1 0

1 2

1 4

1 6

1 8

2 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 $ tr

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
25

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

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio composition by original issuance type 

and term can be found in the appendix (Page 44).

Recent and Projected Maturity Profile, $ billions

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

2009 2,702 774 663 962 559 643 695 6,998 5,101

2010 2,563 1,141 895 1,273 907 856 853 8,488 5,872

2011 2,620 1,334 980 1,541 1,070 1,053 1,017 9,616 6,476

2012 2,951 1,373 1,104 1,811 1,214 1,108 1,181 10,742 7,239

2013 2,939 1,523 1,242 1,965 1,454 1,136 1,331 11,590 7,669

2014 2,935 1,739 1,319 2,207 1,440 1,113 1,528 12,281 8,199

2015 3,097 1,775 1,335 2,382 1,478 1,121 1,654 12,841 8,589

2016 3,423 1,828 1,538 2,406 1,501 1,151 1,800 13,648 9,195

2017 3,615 2,050 1,535 2,463 1,491 1,210 1,966 14,328 9,662

2018 3,867 2,045 1,558 2,510 1,559 1,245 2,095 14,879 9,979

2019 3,864 2,120 1,676 2,607 1,640 1,351 2,254 15,512 10,267

2020 3,908 2,244 1,642 2,759 1,702 1,355 2,482 16,093 10,553

2021 4,032 2,178 1,815 2,779 1,727 1,393 2,712 16,636 10,804

2022 3,966 2,382 1,840 2,834 1,784 1,372 2,981 17,161 11,023

2023 4,170 2,381 1,810 2,814 1,818 1,333 3,238 17,565 11,175

2024 4,202 2,374 1,824 2,867 1,832 1,294 3,470 17,863 11,267

2025 4,162 2,398 1,785 3,023 1,793 1,245 3,722 18,128 11,368

2026 4,186 2,307 1,923 2,947 1,782 1,244 3,937 18,326 11,364

2027 4,097 2,434 1,930 2,868 1,638 1,305 4,127 18,399 11,328
26

This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic 

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% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Percent Compositioin

Projected Maturity Profile from end of Fiscal Year

<= 1yr (1,2] (2,3] (3,5] (5,7] (7,10] > 10
27

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 demonstrate the 

basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Portfolio composition by original issuance type 

and term can be found in the appendix (Page 44).

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

2009 38.6 11.1 9.5 13.7 8.0 9.2 9.9 59.1 72.9

2010 30.2 13.4 10.5 15.0 10.7 10.1 10.0 54.2 69.2

2011 27.2 13.9 10.2 16.0 11.1 10.9 10.6 51.3 67.3

2012 27.5 12.8 10.3 16.9 11.3 10.3 11.0 50.5 67.4

2013 25.4 13.1 10.7 17.0 12.5 9.8 11.5 49.2 66.2

2014 23.9 14.2 10.7 18.0 11.7 9.1 12.4 48.8 66.8

2015 24.1 13.8 10.4 18.5 11.5 8.7 12.9 48.3 66.9

2016 25.1 13.4 11.3 17.6 11.0 8.4 13.2 49.7 67.4

2017 25.2 14.3 10.7 17.2 10.4 8.4 13.7 50.2 67.4

2018 26.0 13.7 10.5 16.9 10.5 8.4 14.1 50.2 67.1

2019 24.9 13.7 10.8 16.8 10.6 8.7 14.5 49.4 66.2

2020 24.3 13.9 10.2 17.1 10.6 8.4 15.4 48.4 65.6

2021 24.2 13.1 10.9 16.7 10.4 8.4 16.3 48.2 64.9

2022 23.1 13.9 10.7 16.5 10.4 8.0 17.4 47.7 64.2

2023 23.7 13.6 10.3 16.0 10.4 7.6 18.4 47.6 63.6

2024 23.5 13.3 10.2 16.1 10.3 7.2 19.4 47.0 63.1

2025 23.0 13.2 9.8 16.7 9.9 6.9 20.5 46.0 62.7

2026 22.8 12.6 10.5 16.1 9.7 6.8 21.5 45.9 62.0

2027 22.3 13.2 10.5 15.6 8.9 7.1 22.4 46.0 61.6
Section V:

Demand

28
29

*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.

Summary Statistics for Fiscal Year 2017 Q3 Auctions

Security 

Type Term 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)**

Bill 4-Week 0.772 3.1 634.1 58.0 6.7 35.3 5.1 0.0 5.6

Bill 13-Week 0.905 3.2 497.3 54.2 8.8 37.0 6.5 0.0 14.3

Bill 26-Week 1.022 3.3 416.6 48.6 4.2 47.2 5.6 0.0 24.2

Bill 52-Week 1.141 3.1 58.7 59.0 4.3 36.7 0.7 0.0 6.8

Bill CMB 0.735 3.1 25.0 56.7 12.6 30.7 0.0 0.0 0.1

Coupon 2-Year 1.315 2.9 77.2 28.4 14.1 57.6 0.5 9.8 19.7

Coupon 3-Year 1.532 2.8 71.5 36.0 8.0 56.1 0.2 8.1 26.8

Coupon 5-Year 1.845 2.4 101.8 28.6 7.7 63.7 0.2 12.9 62.4

Coupon 7-Year 2.067 2.6 84.0 18.5 12.0 69.5 0.0 10.6 70.1

Coupon 10-Year 2.313 2.4 63.0 30.9 5.2 63.9 0.0 7.8 71.4

Coupon 30-Year 2.960 2.2 39.0 31.9 5.9 62.2 0.0 5.1 99.3

TIPS 5-Year -0.049 2.5 15.9 16.7 9.2 74.2 0.1 0.0 9.1

TIPS 10-Year 0.420 2.6 11.0 11.3 8.4 80.3 0.0 1.3 13.1

TIPS 30-Year 0.880 2.8 5.0 15.5 8.4 76.1 0.0 0.6 16.6

FRN 2-Year 0.067 3.2 41.0 43.7 0.4 55.9 0.0 3.6 0.0

Total Bills 0.889 3.2 1,631.7 54.5 6.7 38.8 17.9 0.0 50.9

Total Coupons 1.910 2.6 436.5 28.5 9.2 62.4 0.9 54.2 349.7

Total TIPS 0.258 2.6 31.9 14.6 8.8 76.6 0.1 1.9 38.8

Total FRN 0.067 3.2 41.0 43.7 0.4 55.9 0.0 3.6 0.0
30

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6 Jun-07

Jun-08Jun-09Jun-10Jun-11Jun-12Jun-13Jun-14Jun-15Jun-16Jun-17 Bid-to-Cover Ratio

Bid-t o-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)
31

2

2.5

3

3.5

4

4.5 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15 Oct-15 Nov-15 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 Bid-to-Cover Ratio

Bid-t o-Cover Ratios for FRNs

(6-Month Moving Average)
32

1

1.5

2

2.5

3

3.5

4

4.5

Jun-12

Sep-12 Dec-12 Mar-13 Jun-13Sep-13 Dec-13 Mar-14 Jun-14Sep-14 Dec-14 Mar-15 Jun-15Sep-15 Dec-15 Mar-16 Jun-16Sep-16 Dec-16 Mar-17 Jun-17 Bid-to-Cover Ratio

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

( 6-Month Moving Average)

2-Year 3-Year 5-Year
33

1

1.5

2

2.5

3

3.5

Jun-12

Sep-12 Dec-12 Mar-13 Jun-13Sep-13 Dec-13 Mar-14 Jun-14Sep-14 Dec-14 Mar-15 Jun-15Sep-15 Dec-15 Mar-16 Jun-16Sep-16 Dec-16 Mar-17 Jun-17 Bid-to-Cover Ratio

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

( 6-Month Moving Average)

7-Year 10-Year 30-Year
34

1

1.5

2

2.5

3

3.5

Jun-06Jun-07Jun-08Jun-09Jun-10Jun-11Jun-12Jun-13Jun-14Jun-15Jun-16Jun-17 Bid-to-Cover Ratio

Bid-t o-Cover Ratios for TIPS

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

5 %

10%

15%

20%

25%

30%

35%

Jun-13

Aug-13 Oct-13 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 1 3-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
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 %

5 %

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jun-13

Aug-13 Oct-13 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

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
37

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-13

Aug-13 Oct-13 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

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
38

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-13

Aug-13 Oct-13 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

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
39

Excludes SOMA add-ons. 

10%

20%

30%

40%

50%

60%

70%

80%

Jun-13

Aug-13 Oct-13 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

% 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)
40 Excludes SOMA add-ons. 

0 %

5 %

10%

15%

20%

25%

Jun-13

Aug-13 Oct-13 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

% 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)
41 Foreign includes both private sector and official institutions.

0

2 0

4 0

6 0

8 0

100

120

Jun-15

Jul-15

Aug-15

Sep-15 Oct-15 Nov-15 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 $ bn

Total Foreign Awards of Treasuries at Auction, $ billions

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

42
43

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

basic 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% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

End of Fiscal Year

Projected Portfolio Composition by Issuance Type

Bills 2,3,5 7,10,30 TIPS (principal accreted to projection date) FRN
44

Recent and Projected Portfolio Composition by Issuance Type, Percent

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

basic 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 (principal accreted 

to projection date) FRN

2009 28.5 36.2 27.4 63.6 7.9 0.0

2010 21.1 40.1 31.8 71.9 7.0 0.0

2011 15.4 41.4 35.9 77.3 7.3 0.0

2012 15.0 38.4 39.0 77.4 7.5 0.0

2013 13.2 35.8 43.0 78.7 8.1 0.0

2014 11.5 33.0 46.0 79.0 8.5 1.0

2015 10.6 29.4 49.0 78.3 8.8 2.2

2016 12.1 27.0 49.6 76.6 8.9 2.4

2017 12.5 26.2 50.0 76.2 9.0 2.4

2018 12.0 26.2 50.4 76.5 9.2 2.3

2019 11.5 26.9 50.1 77.0 9.3 2.2

2020 11.1 27.1 50.5 77.6 9.2 2.1

2021 10.7 27.2 51.1 78.2 9.1 2.0

2022 10.4 26.8 51.9 78.8 8.9 1.9

2023 10.2 26.5 52.6 79.1 8.9 1.9

2024 10.0 25.9 53.4 79.3 8.8 1.9

2025 9.8 25.3 54.4 79.7 8.6 1.8

2026 9.7 24.7 55.3 79.9 8.5 1.8

2027 9.7 24.2 55.8 80.0 8.5 1.8
*Weighted averages of competitive awards. 45

**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*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

4-Week 4/6/2017 0.760 3.03 54.5 61.3 9.2 29.5 0.4 0.0 0.5

4-Week 4/13/2017 0.760 3.09 54.6 56.3 5.6 38.1 0.3 0.0 0.5

4-Week 4/20/2017 0.750 3.25 54.5 50.8 7.1 42.1 0.4 0.0 0.5

4-Week 4/27/2017 0.735 3.32 59.6 49.7 10.5 39.7 0.4 0.0 0.5

4-Week 5/4/2017 0.725 2.99 54.6 64.1 7.1 28.8 0.4 0.0 0.5

4-Week 5/11/2017 0.710 3.25 54.5 53.7 8.1 38.1 0.4 0.0 0.5

4-Week 5/18/2017 0.695 2.99 54.5 51.9 4.9 43.2 0.4 0.0 0.5

4-Week 5/25/2017 0.735 2.85 54.5 67.2 4.1 28.7 0.4 0.0 0.5

4-Week 6/1/2017 0.840 2.68 44.6 75.6 4.5 19.9 0.4 0.0 0.4

4-Week 6/8/2017 0.840 3.35 39.5 46.4 7.6 46.0 0.4 0.0 0.3

4-Week 6/15/2017 0.885 3.27 34.5 65.4 3.3 31.3 0.4 0.0 0.3

4-Week 6/22/2017 0.850 3.42 34.6 53.9 4.8 41.3 0.4 0.0 0.3

4-Week 6/29/2017 0.890 3.11 39.6 60.1 8.1 31.9 0.4 0.0 0.3

13-Week 4/6/2017 0.790 3.14 38.5 64.2 8.2 27.6 0.5 0.0 1.1

13-Week 4/13/2017 0.825 3.28 38.5 43.5 8.1 48.4 0.5 0.0 1.1

13-Week 4/20/2017 0.820 3.11 38.4 54.1 10.9 35.0 0.5 0.0 1.1

13-Week 4/27/2017 0.820 3.09 37.5 60.3 12.7 27.0 0.5 0.0 1.1

13-Week 5/4/2017 0.845 3.03 38.4 73.7 7.9 18.4 0.5 0.0 1.1

13-Week 5/11/2017 0.900 3.23 38.3 44.7 12.4 42.9 0.5 0.0 1.1

13-Week 5/18/2017 0.905 3.09 38.3 59.1 7.1 33.8 0.5 0.0 1.1

13-Week 5/25/2017 0.920 3.23 38.4 42.0 7.3 50.7 0.5 0.0 1.1

13-Week 6/1/2017 0.960 3.17 37.5 53.2 7.4 39.4 0.5 0.0 1.1

13-Week 6/8/2017 0.980 3.28 38.5 42.1 6.7 51.3 0.5 0.0 1.1

13-Week 6/15/2017 0.990 3.51 38.3 46.5 8.8 44.7 0.5 0.0 1.1

13-Week 6/22/2017 1.010 3.18 38.2 63.0 7.3 29.7 0.6 0.0 1.1

13-Week 6/29/2017 1.000 3.10 38.3 58.2 10.1 31.7 0.5 0.0 1.1

26-Week 4/6/2017 0.910 3.29 32.0 60.8 4.1 35.1 0.5 0.0 1.9

26-Week 4/13/2017 0.950 3.25 32.0 38.5 2.3 59.2 0.4 0.0 1.9

26-Week 4/20/2017 0.945 3.14 32.2 64.4 5.6 30.1 0.4 0.0 1.9

26-Week 4/27/2017 0.955 3.42 31.6 49.4 4.9 45.7 0.4 0.0 1.9

26-Week 5/4/2017 0.975 3.25 32.1 55.9 3.5 40.6 0.4 0.0 1.9

26-Week 5/11/2017 1.015 3.01 32.3 50.9 3.9 45.1 0.4 0.0 1.9

26-Week 5/18/2017 1.020 3.15 32.2 43.8 3.6 52.6 0.5 0.0 1.8

26-Week 5/25/2017 1.050 3.06 32.2 50.9 3.2 45.8 0.4 0.0 1.8

26-Week 6/1/2017 1.060 3.62 31.6 31.7 8.2 60.1 0.4 0.0 1.8

26-Week 6/8/2017 1.070 3.35 32.4 36.6 4.1 59.3 0.3 0.0 1.9

26-Week 6/15/2017 1.100 3.76 32.3 45.4 4.4 50.2 0.4 0.0 1.9

26-Week 6/22/2017 1.120 3.35 32.2 52.8 2.9 44.2 0.5 0.0 1.9

26-Week 6/29/2017 1.110 3.35 31.6 50.7 4.0 45.4 0.5 0.0 1.9

52-Week 4/27/2017 1.060 3.23 19.2 58.1 3.1 38.7 0.2 0.0 2.3

52-Week 5/25/2017 1.145 2.84 19.8 73.4 3.4 23.2 0.2 0.0 2.2

52-Week 6/22/2017 1.215 3.31 19.7 45.3 6.4 48.2 0.3 0.0 2.3

CMB 4/11/2017 0.720 4.61 0.0 100.0 0.0 0.0 0.0 0.0 0.0

CMB 6/1/2017 0.735 3.14 25.0 56.7 12.6 30.8 0.0 0.0 0.1

Bills
46

*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-to-Cover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % Indirect*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

2-Year 5/1/2017 1.280 2.85 25.7 29.7 11.4 58.9 0.2 3.5 6.7

2-Year 5/31/2017 1.316 2.90 25.8 30.4 12.4 57.2 0.1 3.1 6.5

2-Year 6/30/2017 1.348 3.03 25.7 25.0 18.3 56.6 0.2 3.2 6.6

3-Year 4/17/2017 1.525 2.62 23.8 39.9 8.3 51.8 0.1 0.2 8.1

3-Year 5/15/2017 1.572 2.76 23.9 39.9 9.3 50.8 0.0 7.9 10.8

3-Year 6/15/2017 1.500 3.00 23.8 28.2 6.2 65.6 0.1 0.0 8.0

5-Year 5/1/2017 1.875 2.34 34.0 37.4 5.3 57.3 0.0 4.6 21.1

5-Year 5/31/2017 1.831 2.67 33.9 22.7 8.6 68.7 0.1 4.1 20.5

5-Year 6/30/2017 1.828 2.33 33.9 25.6 9.2 65.2 0.1 4.1 20.8

7-Year 5/1/2017 2.084 2.73 28.0 8.8 9.5 81.7 0.0 3.8 23.7

7-Year 5/31/2017 2.060 2.54 28.0 21.6 17.2 61.2 0.0 3.4 23.1

7-Year 6/30/2017 2.056 2.46 28.0 25.2 9.4 65.4 0.0 3.4 23.3

10-Year 4/17/2017 2.332 2.48 20.0 29.5 5.3 65.2 0.0 0.2 20.1

10-Year 5/15/2017 2.400 2.33 23.0 34.2 5.1 60.7 0.0 7.6 31.3

10-Year 6/15/2017 2.195 2.54 20.0 28.6 5.3 66.1 0.0 0.0 20.0

30-Year 4/17/2017 2.938 2.23 12.0 29.7 5.8 64.5 0.0 0.1 27.1

30-Year 5/15/2017 3.050 2.19 15.0 35.6 5.3 59.1 0.0 5.0 45.2

30-Year 6/15/2017 2.870 2.32 12.0 29.6 6.7 63.7 0.0 0.0 27.0

2-Year FRN 5/1/2017 0.070 3.35 15.0 36.9 0.3 62.8 0.0 2.0 0.0

2-Year FRN 5/26/2017 0.050 2.99 13.0 58.4 0.8 40.8 0.0 0.0 0.0

2-Year FRN 6/30/2017 0.080 3.13 13.0 36.7 0.2 63.1 0.0 1.6 0.0

Issue Settle Date Stop Out 

Rate (%)*

Bid-to-Cover 

Ratio*

Competitive 

Awards ($bn)

% Primary 

Dealer* % Direct* % Indirect*

NonCompetitive 

Awards ($bn)

SOMA 

Add Ons 

($bn)

10-Year 

Equivalent 

($bn)*

5-Year TIPS 4/28/2017 (0.049) 2.52 15.9 16.7 9.2 74.2 0.1 0.0 9.1

10-Year TIPS 5/31/2017 0.420 2.56 11.0 11.3 8.4 80.3 0.0 1.3 13.1

30-Year TIPS 6/30/2017 0.880 2.83 5.0 15.5 8.4 76.1 0.0 0.6 16.6

Nominal Coupons

TIPS
TBAC Charge: Normalization of SOMA portfolio

1

What factors should Treasury consider as it thinks about the additional funding needed to meet future 

redemptions from the Fed’s SOMA Treasury portfolio? For example, when should Treasury begin 

increasing auction sizes and in what tenors? How should Treasury plan for any unforeseen shocks to 

borrowing needs over the period when the Fed is normalizing the SOMA portfolio? Are there any 

disruptive secondary-market impacts related to unwinding the SOMA portfolio that Treasury needs to 

consider? (E.g., market dislocations as the stock of lendable securities in SOMA declines?) If so, 

what might Treasury consider to address such concerns?
Agenda

2

1. Expectations for balance sheet normalization

• When will Fed start phasing out Treasury holdings? 

• What will be the size of Treasury holdings once the Fed balance sheet is normalized?

• How will the Fed distribute eventual Treasury purchases across maturities?

2. Expectations for resulting Treasury issuance

• How large will Treasury’s financing needs be? When should Treasury start increasing auction sizes?

• What will be the impact on auction stop-out rates?

• What is the recommended distribution across tenors for higher financing needs?

3. Market implications of balance sheet normalization

• Will SOMA redemptions have disruptive secondary market impacts?

• What will be the impact on financial markets overall including risk assets?

• How will the repo market be impacted?
1. Expectations for balance sheet normalization

3
Summary of expectations for Fed balance sheet normalization

4

• The FOMC will announce a phasing out of Treasury and MBS reinvestments at the 

September FOMC meeting to start October 1st, 2017. 

• When conducting monetary policy, the FOMC will maintain the current floor system. We 

estimate “steady state” reserves of $650 billion, which includes a “buffer”.

• The balance sheet will reach normal levels by 1Q 2021.

• At time of normalization, Treasury holdings to be $1.7 trillion, down from $2.5 trillion now. 

• After normalization, the Fed will reinvest all maturing Treasuries on a pro-rata basis across 

auctions. Maturing MBS will be reinvested in T-bills. 

• The Fed’s holdings of Treasuries will grow by $100-200bn per year post normalization.

• The impact on 10y premiums should be 40bp over the period.
FOMC approach to reducing SOMA holdings

5

• The Committee intends to gradually reduce the Federal Reserve's securities holdings by decreasing its 

reinvestment of the principal payments it receives from securities held in the System Open Market 

Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually 

rising caps.

• For payments of principal that the Federal Reserve receives from maturing Treasury securities, the 

Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 

billion at three-month intervals over 12 months until it reaches $30 billion per month.

• For payments of principal that the Federal Reserve receives from its holdings of agency debt and 

mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month 

initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches 

$20 billion per month.

• The Committee also anticipates that the caps will remain in place once they reach their respective 

maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and 

predictable manner until the Committee judges that the Federal Reserve is holding no more securities 

than necessary to implement monetary policy efficiently and effectively.

- Addendum to the FOMC Policy Normalization Principles and Plans, September 2017
Current Federal Reserve Balance Sheet

Federal Reserve Balance Sheet 

USD $bls, As of June 2017

Assets Liabilities and Capital 

Securities held outright 4,235 Currency in Circulation 1,560

 US Treasuries 2,465 Deposits 280

 Agency Debt and MBS 1,770 Treasury General Account 198

Other Assets 274 FMUs and others 77

 Foreign Officials 5

 Term Deposits -

Total Assets 4,510 Reverse Repurchase Agreements 505

 Foreign RRP 241

 Others 264

Other Liabilities and Capital 47

Reserve Balances 2,118

Total Liabilities and Capital 4,510
A framework for projecting Fed balance sheet normalization 

7

• To project the future path of the Federal Reserve’s balance sheet we estimate the evolution of the 

various Federal Reserve asset and liability accounts. We know the near-term path of Treasury coupon 

reinvestments with certainty.* Forecasting the other accounts can be boiled down to three key 

questions: 

• What is the natural growth of Fed liabilities, excluding reserves?

• Currency in circulation

• Treasury General Account (TGA)

• Foreign and other RRPs

• FMU accounts

• What is the steady state level of reserves?

• Will the Fed use a floor or corridor system for effective Fed funds?

• What are the additional banking system reserve needs due to post crisis regulations, including LCR?

• What is the pace of MBS prepays?

• Future path of interest rates?

*Note, the path of TIPS inflation compensation is uncertain. 
Base case expectations

8

• Currency in circulation – grows 4.5% a year, lower than 

post-crisis growth of 7%, due to higher opportunity cost 

of holding cash as rates rise

• TGA – Treasury cash balances return to 5-day liquidity 

standard after debt ceiling suspended / reset and grow 

with GDI afterward

• FMU Deposits – FMU margin accounts expected to grow 

inline with banking system deposits

• RRPs – Dealer RRP facility slowly phased out over time. 

Foreign RRP balances unchanged to slightly lower. 

Foreign RRP rate is set based on average of relevant o/n 

rates. Balances have been stable despite rate hikes. 

• Steady state reserves (key assumption) - Our $650bn 

steady state reserve forecast based on estimated future 

LCR – related bank reserve demand ($500bn) plus 

additional buffer to maintain floor system ($150bn).

• MBS prepays (key assumption) – MBS prepay as 

forwards are realized.

Federal Reserve Balance Sheet 

USD $bls, As of June 2017 Current 1Q2021** Diff

Assets

TSY 2,465 1,735 (730)

MBS 1,770 1,178 (592)

Other Assets 274 274 -

Total Assets 4,510 3,187 (1,323)

Liabilities

CCY in Circulation 1,559 1,821 262

Total Deposits 280 468 188

RRPs 505 200 (305)

Other Liabilities 

 & Capital 47 47 -

Bank Reserves 2,119 650 (1,469)

Total Liabilities 4,510 3,187 (1,324)

** We expect b/s to reach steady state in !Q 2021
Projected Path of SOMA Assets and Liabilities

The projections are most sensitive to the “Key Assumptions.” Those include, 4.5% 

currency growth, steady state reserves of $650bn and MBS pre-pay as forwards are 

realized.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jul-07 Jul-10 Jul-13 Jul-16 Jul-19 Jul-22

$bn

Reserves Total Dep RRP CCY

SOMA Liabilities

Projections 

Normalization

1Q2021

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jul-07 Jul-10 Jul-13 Jul-16 Jul-19 Jul-22

$bn

TSY MBS Other Assets

SOMA Assets 

Projections 

Normalization

1Q2021

The projections are most sensitive to the “Key Assumptions”, including 4.5% currency growth, $650bn steady state 

reserves and MBS prepays as forwards are realized.
Currency in Circulation– Growth likely to decline as rates rise

Currency in circulation growth is a function of the opportunity costs of holding cash and GDP growth. Other factors like currency 

digitalization could also be influential. Similar to the 2004-2006 Fed hiking cycle, currency demand growth will likely decline 

relative to GDP as the Fed continues to raise interest rates. 

3

4

5

6

7

8

9

-5

0

5

10

15

20

Jun-60 Jun-70 Jun-80 Jun-90 Jun-00 Jun-10

CCY in Circulation vs 

10yr Bond Yields

10yr TSY Yields CCY in Circulation (rhs, % GDP)

%, y/y %

-5

0

5

10

15

20

Jun-60 Jun-70 Jun-80 Jun-90 Jun-00 Jun-10

CCY in Circulation vs GDP Growth

Nominal GDP Growth Currency in Circulation Growth

%, y/y
Modest Increases in FMU Deposits Held at the Fed 

On January 2015, the Board of Governors of the Federal Reserve announced the 8 clearing houses designed as systemically 

important Financial Market Utilities (FMUs) could establish deposit accounts at the Federal Reserve. Since then, FMU deposits –

client margin balances – have grown by about $70bn. 

0

20

40

60

80

100

120

Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

"Other" Deposits, including FMUs $bn

At this point, we suspect all eligible cash held by FMUs has made its way to a Fed account. And while its possible that more entities 

receive the FMU designation in the future, we aren’t aware of any additional entities currently under review. As a result, we 

forecast FMU margin account growth inline with broader banking system deposit growth. 
Steady State Excess Reserves Likely Higher than Pre-Crisis 

The November 2016 FOMC minutes indicated that SOMA participants are generally in favor of maintaining the floor system for 

monetary policy management. This requires maintaining the minimum supply of reserves at remains on the flat portion of the bank 

reserve demand curve. 

 -

 500

 1,000

 1,500

 2,000

 2,500

 3,000

Jul-07 Jul-10 Jul-13 Jul-16 Jul-19 Jul-22

$bls Aggregate Reserves

Source: FDIC Call Report, Rezende Et al (2016), PIMCO Calculations Projected Actual

*Aggregate Deposits are assumed to grow by 4% per year. 

Estimated LCR-Related Reserve Demand

LCR Level Haircut Banks >$250bn

Cap-Adjusted HQLA 

Eligible Level 1 1 100% 1,350

 of which Reserves 1 100% 428

Eligible Level 2A 2a 85% 523

Eligible Level 2B 2b 50% 65

Total HQLA 1,938

Total Assets 13,841

HQLA / Total Assets 14%

Reserves/HQLA 22%

Projected HQLA 2,200

 Of which Reserves 500

 Reserve Buffer to Maintain Floor 150

Total Steady State Reserves 650

Post crisis regulations, including the liquidity coverage ratio (LCR), have likely increased banking system demand for reserves.

We estimate that system wide HQLA is currently $1.9 trillion, of which 22% is bank reserves. We expect this to grow inline with 

deposits over time. Our $650bn steady state reserve forecasts are based on estimated future bank reserve demand ($500bn) 

plus an additional buffer to maintain the floor system ($150bn).
Treasury and Projected MBS Maturities vs Announced Caps 

0

5

10

15

20

25

30

Dec-17 Sep-18 Jun-19 Mar-20 Dec-20 Sep-21

$bn

Static Rates FWD MBS Caps

Monthly SOMA MBS Prepay Scenarios

vs Reinvestment Caps

0

10

20

30

40

50

60

70

80

Dec-17 Sep-18 Jun-19 Mar-20 Dec-20 Sep-21

$bn

TSY Maturities (Par) TSY Caps

Monthly SOMA TSY Maturities

vs Reinvestment Caps

Rates +/- 50 bps from forwards would imply size of terminal MBS holdings ~ +/- $ 60 bn 

During many months, the actual proceeds of SOMA Treasury and MBS maturities are expected to be less 

than the respective cap. After the first year, monthly maturing MBS proceeds are estimated to come under 

the cap most of the time, while Treasury proceeds will be under the cap around half of the time.
Projections of Fed Balance Sheet Size: Various Scenarios

 -

 500

 1,000

 1,500

 2,000

 2,500

 3,000

 3,500

 4,000

 4,500

 5,000

Jan-09 Jan-12 Jan-15 Jan-18 Jan-21

$bls Fed Balance Sheet Size

CCY growth of 2%

Steady State Reserves of $300bn

Projected Size Actual Size

Projected Reserves Actual Reserves

 -

 500

 1,000

 1,500

 2,000

 2,500

 3,000

 3,500

 4,000

 4,500

 5,000

Jan-09 Jan-12 Jan-15 Jan-18 Jan-21

$bls Fed Balance Sheet Size

CCY growth of 6%

Steady State Reserves of $1tr

Projected Size Actual Size

Projected Reserves Actual Reserves

Under alternative scenarios for steady state reserves and currency growth, the length of time required to normalize 

the balance sheet varies from roughly 2.5- to 6-years, and the projected incremental Treasury funding need varies 

from $510bn to $1tril. 

Date Steady State Reached Under Various Scenarios

$300B $650B $1T

2% 3Q2023 3Q2021 3Q2020

4.5% 1Q2022 1Q2021 2Q2020

6% 4Q2021 3Q2020 1Q2020

Reserves

CCY Growth

Projected Treasury Funding Need Under Various Scenarios

$300B $650B $1T

2% 1030 850 650

4.5% 890 730 560

6% 810 650 510

$bls Reserves

CCY Growth
Dollar duration impact of the B/S reduction in Treasuries

0

1

2

3

4

5

6

Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22

$tril Cumulative Dollar Duration Impact of 

Reducing the Treasuries Portfolio 

Roll-off stops 2Q2023

Roll-off stops 1Q2021

Roll-off stops 1Q2020

$5.2 tril

$4.0 tril

$3.0 tril

 -

 25

 50

 75

 100

 125

 150

 175

 200

 225

 250

 275

 300

Jan-17 Jan-23 Jan-29 Jan-35 Jan-41 Jan-47

SOMA Roll-Off

Treasury Roll-off

Roll-off stops 2Q2023

Roll-off stops 1Q2021

Roll-off stops 1Q2020

$bns

In our base case, incremental dollar duration supplied to the Treasury market would reach $4T* (or $470B in 10Y 

equivalent**) due to the reduction in the Treasury portfolio from October 2017 to March 2021 (at which point 

tapering stops as reserves level of $650B is reached).

Dollar duration = par amount x duration, Treasury auctions are assumed to be increased on a pro-rata basis. 

** Calculated by dividing the dollar duration by the 10Y Bond current duration (8.6)
10yr Term Premium Impact 

Study Sample 

10yr Yield Effect per 1ppt of 

GDP (bp)

Modigliani-Sutch (1966,1967) Operation Twist 0

Greenwood-Vayanos Postwar US 4

Bernanke et al (2004) US 10

Krishnamurthy et al (2010, 2011) QE1 and QE2 4

Gagnon et al (2011) QE1 7

D'Amico et al (2012) QE1 12

Hamilton et al (2011) QE2 4

Hancock et al (2011) QE1 8

Swanson (2011) Operation Twist 4

Neely (2011) QE1 4

Average 6

Projected Decline in Fed Asset Holdings (Next 4yrs, % of GDP) 7ppts

10yr Yield Impact (bp) 40

We expect the impact on the MBS spread to be a further 10-15 bps in the absence of regulatory changes. 

Based on a number of studies of the privately held supply impact on 10yr Term premiums, we estimate the 

decline in SOMA securities holdings over the next 4yrs could raise 10yr Treasury yields by 40bps, all else 

equal. 
2. Expectations for resulting Treasury issuance

17
Primary dealer surveys forecast rising budget deficits

18

Source: New York Fed Primary Dealer Survey, Haver Analytics, Barclays Research

Budget deficits have widened from the post-crisis lows

Primary dealers expect deficits to widen

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17

Budget Deficits, 12M Rolling Sum, $bn, rhs

3.0%

3.2%

3.3%

3.2% 3.2%

3.6%

3.9%

3.3%

3.8%

4.2%

3.3%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

FY16 Actual FY17 FY18 FY19

25 %ile Def/ GDP, %, PD Median 75 %ile CBO Baseline

• Budget deficits have widened from post-crisis lows as 

revenue growth has slowed down amid a steady increase 

in outlays

• The latest NY Fed survey shows median expectation of 

deficits of 3.9% by FY-19 (~$800bn), versus 3.2% in FY17 (~$600bn). 

• These estimates likely assume modestly expansionary 

fiscal policy. CBO baseline is for 3.3% budget deficits in 

FY-19 vs PD median of 3.9%

-10%

-5%

0%

5%

10%

15%

20%

Sep-10 Sep-12 Sep-14 Sep-16

Revenues, 12M, yoy growth, %

Outlays, 12M, yoy growth, %
Borrowing needs over coming years – median estimates

19

Borrowing needs are likely to be significantly 

higher over the coming years

Current cash balance is likely low relative to desired level

$bn CY-17 CY-18 CY-19 CY-20

Budget Deficits 600 740 830 920

Change in Cash Balance -150 50 0 0

Others (mainly Std loans) 75 90 90 90

Net Borrowing Needs 525 880 920 1,010

Note: The cash balance is assumed to be $250bn at YE-17, rising to $300bn by YE-18. 

Source: New York Fed Primary Dealer Survey, US Treasury, Haver Analytics, Barclays 

Research

0

50

100

150

200

250

300

350

400

450

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17

Treasury Cash Balance, $bn

• Borrowing needs are likely to be substantial higher over the 

coming years if budget deficits widen as per the PD survey

• In 2017, the Treasury partly financed deficits by reducing its 

cash balance. Returning the cash balance to desired levels, 

will add to borrowing needs

• Student loans related borrowing needs remain elevated at 

$75-$100bn

• Overall, borrowing needs could be in the range of $850bn-

$1trillion over the coming years as compared with $500-

$550bn in 2017

Student loans related borrowing needs remain significant

0

25

50

75

100

125

150

May-12 May-13 May-14 May-15 May-16 May-17

Direct Loan financing, 12M Rolling sum, $bn
Addons: elevated in 2018 but below 2017 levels in 2019/2020

20

SOMA add-ons will still be elevated in 2018 

falling below 2017 levels in 2019/2020

Addons at month end auctions (2s,5s,7s) would fall much 

more than those at mid-month auctions (3s,10s,30s)

Source: Federal Reserve, New York Fed, US Treasury, Barclays Research

35

24

45

38

21

14

17

8

33

10 8

31

20

2 4

26

5 4

24

15

0

0

5

10

15

20

25

30

35

40

45

50

2y 3y 5y 7y 10y 30y TIPS/ FRNs

2018 2019 2020

• SOMA addons would be substantially smaller under the proposed strategy, than in the status quo

• Of the ~$425bn maturing in the Fed’s Treasury portfolio in 2018, ~$195bn would be reinvested. Still addons would be higher than 

those in 2017 which are expected to be ~$180bn.

• SOMA addons should fall to ~$110bn in 2019 and ~$80bn in 2020. The distribution of maturing Treasuries suggests that the 

reduction would come mainly at month end auctions.

• Assuming that the normalization process is complete by early 2021, the Fed would need to resume reinvestments of maturing 

Treasuries in 2021. 

• Net Treasury purchases related to re-investing pay-downs in the Agency portfolio and those needed to keep reserve balances 

unchanged (mainly, keeping up with the increase in the currency in circulation) will likely be conducted in the secondary market.

177 194

111 79

271

18

229

267

203

0

0

50

100

150

200

250

300

350

400

450

CY-17 CY-18 CY-19 CY-20 CY-21

Amount Reinvested Amount Not Reinvested
Treasury issuance likely to rise significantly over coming years

21

Note: *T-bills as a % of outstanding debt is assumed to gradually rises to 16% by YE-20. The amount of maturing debt in future years is estimated assuming a 

proportional increase in all nominal auction sizes starting early next year. Source: Federal Reserve, New York Fed, US Treasury, Barclays Research

$bn CY-17 CY-18 CY-19 CY-20 CY 18 vs. 17 CY 19 vs. 17 CY 20 vs. 17

a. Net Borrowing Needs 525 880 920 1,010 355 395 +485

b. Net Bill Issuance* 124 237 257 286 113 133 +161

c. Net Issuance ex-bills (a-b) 401 643 663 724 242 262 +324

d. Maturing Debt ex-bills 1,824 1,872 1,972 2,073 49 148 +250

e. Gross Issuance ex-bills (c+d) 2,224 2,515 2,635 2,798 291 411 +574

f. SOMA Addons 177 194 111 79 17 -66 -98

g. Offering Amounts (e-f) 2,047 2,321 2,524 2,719 +274 +477 +672

Bills, % Debt 13% 14% 15% 16%

• Both net and gross issuance to public would need to steadily rise over the coming years.

• Primary reason for increased net issuance is higher borrowing needs ($475-$500bn higher in CY-20 vs. CY 17). Assuming that the 

share of T-bills is steadily raised to ~16%, net issuance ex-bills would still need to be $325bn higher in 2020 vs. 2017.

• Annual gross issuance ex-bills would need to increase more. The amount of maturing debt which has to be refinanced is 

scheduled to steadily rise (~$250bn higher in CY-20 vs. CY 17).

• Reduced SOMA addons further add to gross issuance to public but are not the primary direct reason for increasing issuance; 

Would be $100bn lower in 2020 ($80bn) vs. 2017 ($180bn) 

• As compared with 2017, annual offering amounts ex-bills would be ~$275bn higher in CY-18, ~$475bn higher in CY-19 and 

~$670bn in CY-20.

• While SOMA addons would increase in 2021, offering amounts to public need not have to fall as 1. budget deficits may rise 

further, 2. the Treasury may want to stabilize the share of the T-bill universe, thus reducing the net cash raised via T-bills and 3. 

the amount of maturing debt that needs to be refinanced rises further.
Deficits: PD median versus Administration forecasts

22

Note: We convert the Administration’s FY deficit forecasts into CY forecasts here

$bn CY-17 CY-18 CY-19 CY-20

Budget Deficits 600 500 480 460

Change in Cash Balance -150 50 0 0

Others 75 90 90 90

Net Borrowing Needs 525 640 570 550

$bn CY-17 CY-18 CY-19 CY-20

Budget Deficits 600 740 830 920

Change in Cash Balance -150 50 0 0

Others (mainly Std loans) 75 90 90 90

Net Borrowing Needs 525 880 920 1,010

Administration

Primary dealer median
Treasury financing needs: PD median vs Administration forecasts

23

$bn CY-17 CY-18 CY-19 CY-20 CY 18 vs. 17 CY 19 vs. 17 CY 20 vs. 17

a. Net Borrowing Needs 525 640 570 550 115 45 25

b. Net Bill Issuance* 124 203 203 208 79 78 84

c. Net Issuance ex-bills (a-b) 401 437 367 342 36 -33 -59

d. Maturing Debt ex-bills 1,824 1,872 1,972 2,036 49 148 212

e. Gross Issuance ex-bills (c+d) 2,224 2,309 2,339 2,378 85 115 154

f. SOMA Addons 177 194 111 79 17 -66 -98

g. Offering Amounts (e-f) 2,047 2,115 2,228 2,299 +68 +181 +252

Bills, % Debt 13% 14% 15% 16%

$bn CY-17 CY-18 CY-19 CY-20 CY 18 vs. 17 CY 19 vs. 17 CY 20 vs. 17

a. Net Borrowing Needs 525 880 920 1,010 355 395 +485

b. Net Bill Issuance* 124 237 257 286 113 133 +161

c. Net Issuance ex-bills (a-b) 401 643 663 724 242 262 +324

d. Maturing Debt ex-bills 1,824 1,872 1,972 2,073 49 148 +250

e. Gross Issuance ex-bills (c+d) 2,224 2,515 2,635 2,798 291 411 +574

f. SOMA Addons 177 194 111 79 17 -66 -98

g. Offering Amounts (e-f) 2,047 2,321 2,524 2,719 +274 +477 +672

Bills, % Debt 13% 14% 15% 16%

Administration

Primary dealer median
How should the Treasury distribute the required increases? Exante cost analysis suggests increasing issuance across the curve

24

Source: New York Fed ACM Model, SPF, Haver Analytics, Barclays Research

T-bills are trading rich to similar maturity OIS suggesting 

room for increasing the share of the T-bill universe

Term Premia is low across the curve, allowing for 

increasing term issuance across the curve

Inflation risk premia is likely negative, suggesting the 

increase in TIPS issuance could be relatively smaller

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16

2y Term Premium, % 10y term premium, %

9

10

11

12

13

14

15

16

17

-30

-25

-20

-15

-10

-5

0

Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

3m T-bills vs OIS, bp, lhs T-bills, % debt, rhs 1.0

1.5

2.0

2.5

3.0

3.5

Jul-04 Jul-07 Jul-10 Jul-13 Jul-16

10y inflation swaps, % 10y CPI infl expectations, %

• T-bills have remained rich versus similar maturity OIS rates 

even as their share has risen from the lows. This likely reflects 

the increase in demand base due to money market reform. 

There is room for further expanding the T-bill universe.

• Term premia across the nominal curve is low in a historical 

context, suggesting ex-ante cost of issuing term debt is low. 

The Treasury should consider across-the-board increases.

• Inflation risk premia is likely negative which suggests a 

relatively smaller percentage increase in TIPS auction sizes 

would be desirable
Given median fiscal forecast and potential limits on auction sizes, 

an across-the-board increase in issuance is a viable option

25

• In addition to ex-ante costs considerations, the distribution of the required increases should take into account the maximum size Treasury can issue 

without significant yield deviation, though this may change over time (use primary dealer survey as a guide).

• Assuming no changes in auction sizes this year, the Treasury is scheduled to issue (in gross terms) ~$2.05 across all tenors including TIPS and 

FRNs, ~$1.75trn in 2y-30y nominal coupons , ~$1.15trn in 5y-30y nominal coupons and ~$1trn in 2y-5y nominal coupons in 2017.

• Sc 1: An across-the-board proportional increase of auction sizes by about 20-25% would suffice through 2019. Such a percentage increase 

would be within the range PDs have highlighted in the latest auction size survey

• Sc 2: If increasing sizes proportionally only for 2y-30y nominal coupon issues, the required % increase would be roughly 25-30%; still mostly 

within the desired range.

• Sc 3: If increasing sizes proportionally only for 5y-30y nominal issues, the required % increase would be roughly 40%; well above what PDs 

have noted that can be absorbed without significant yield deviation. 

• Sc 4: If increasing sizes proportionally only for 2y-5y nominal fixed coupon issues, the required % increase would be almost 50%; within the 

limit for 2y and 3y but well above that for the 5y. 

• Hence, Scenarios 1 and 2 seem more desirable. 

CY-17 

Issuance CY-18 CY-19 CY-20

Required Increase in Annual Gross 

Issuance (ex-bills), $bn +274 +477 +672

% Increase vs 2017 Levels

Sc 1. All Tenors including FRNS/TIPS 2,047 13% 23% 33%

Sc 2. Only 2y-30y Nom Cpns. 1,752 16% 27% 38%

Sc 3. Only 5y-30y Nom Cpns. 1,152 24% 41% 58%

Sc 4. Only 2y-5y Nom Cpns. 1,008 27% 47% 67%

58%

54%

21%

25%

35%

27% 25%

31%

57%

27%

0%

10%

20%

30%

40%

50%

60%

70%

2y 3y 5y 7y 10y 30y 5y TIPS 10y 

TIPS

30y 

TIPS

2y FRN

% Increase before the Maximum is Reached Sc 1 Sc 2 Sc 3 Sc 4

Source: Federal Reserve, New York Fed, US Treasury Primary Dealer Survey, Barclays Research
Issuance: PD median versus administration forecasts

26

Note: *T-bills as a % of outstanding debt is assumed to gradually rises to 16% by YE-20. The amount of maturing debt in future years is estimated assuming a 

proportional increase in all nominal auction sizes starting early next year. Source: Federal Reserve, New York Fed, US Treasury, Barclays Research

CY-17 

Issuance CY-18 CY-19 CY-20

Required Increase in Annual Gross 

Issuance (ex-bills), $bn +68 +181 +252

% Increase vs 2017 Levels

Sc 1. All Tenors including FRNS/TIPS 2,047 3% 9% 12%

Sc 2. Only 2y-30y Nom Cpns. 1,752 4% 10% 14%

Sc 3. Only 5y-30y Nom Cpns. 1,152 6% 16% 22%

Sc 4. Only 2y-5y Nom Cpns. 1,008 7% 18% 25%

CY-17 

Issuance CY-18 CY-19 CY-20

Required Increase in Annual Gross 

Issuance (ex-bills), $bn +274 +477 +672

% Increase vs 2017 Levels

Sc 1. All Tenors including FRNS/TIPS 2,047 13% 23% 33%

Sc 2. Only 2y-30y Nom Cpns. 1,752 16% 27% 38%

Sc 3. Only 5y-30y Nom Cpns. 1,152 24% 41% 58%

Sc 4. Only 2y-5y Nom Cpns. 1,008 27% 47% 67%

Administration

Primary dealer median
Impact on auction stop out rates of across-the-board increases 

would be limited

27

Source: Federal Reserve, New York Fed, US Treasury, Barclays Research

Cumulative change in auction 

sizes over a 12M period, $bn

Effective Rate of Change , 

$bn/m

PD Response on Impact of 

Auction Stop out Rate 12M Fwd

Current New 

Issue Sizes, $bn Scenario 1 Scenario 2 Scenario 1 Scenario 2

Median for a 

$1bn/M 

increase, bp

Standard 

deviation, bp

2y 26 6 7 0.5 0.6 1 1.0

3y 24 6 6 0.5 0.5 1 1.4

5y 34 8 9 0.7 0.8 2 2.4

7y 28 6 8 0.5 0.6 2 3.5

10y 23 5 6 0.4 0.5 3 2.9

30y 15 3 4 0.3 0.3 4 4.3

5y TIPS 16 4 0.3 3 3.0

10y TIPS 13 3 0.2 3 3.9

30y TIPS 7 2 0.1 5 5.8

2y FRN 15 3 0.3 1 1.9

• The impact of across-the-board increases in auction sizes on auction stop out rates would also be limited 

• Judging from the latest primary dealer survey on auction sizes, raising auction sizes would have the biggest effect on stop out 

rates on longer tenors. For a $1bn/mo change over a 12 month period, the median forecast is for the stop out rate to be 4bp and 

5bp higher 12 month forward for 30y Nominals and TIPS respectively.

• Assuming that auction sizes are raised to required levels (based on the % increase needed in 2019) over a 12 month period, the 

effective increase in auction sizes per month would be less than a $1bn/month under Scenarios 1 and 2. For longer tenors, the

increase would be less than $0.5bn/mo.

• This also suggests that the Treasury should distribute the increases rather than concentrate them in a few tenors
An across-the-board increase in auction sizes would also ensure 

a modest further lengthening of the average maturity

28

Share of T-bill universe would rise from the recent lows Weighted Average Maturity would also modestly rise assuming 

a proportional increase in nominal coupon auction sizes

Source: Federal Reserve, New York Fed, US Treasury, Barclays Research

5

10

15

20

25

Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 Dec-20

T-bills, % of Marketable Debt

55

60

65

70

75

Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 Dec-20

Weighed Average Maturity, months

• The share of T-bills outstanding would rise from current low levels.

• The weighted average maturity (WAM) would also gradually rise over the coming years, after having stalled at ~70 months for the 

past couple of years. 

• Were the Treasury to instead rely just on T-bills (or say issues upto the 5y tenor) to meet the increase in borrowing needs, the

WAM is likely to fall.
Treasury financing needs with a large jump in T-bill’s share

29

Bill share to 22% in 3 years

CY-17 CY-18 CY-19 CY-20

Net Borrowing 525 880 920 1,010

Net Bills 124 578 639 714

Net Issuance ex-bills 401 302 281 296

Maturing Debt ex-bills 1,824 1,872 1,972 2,022

Gross Issuance ex-bills 2,224 2,174 2,253 2,318

Amount Reinvested 177 194 111 79

Amount Not Reinvested 18 229 267 203

Offering Amounts 2,047 1,980 2,142 2,239

Change vs 2017 -67 95 192

Memo: Bills, % Debt 13% 16% 19% 22%

WAM goes down in this scenario
Summing up issuance needs

30

• Net and gross issuance to public would need to steadily rise over the coming years for three main reasons:

• Treasury’s borrowing needs are likely to be substantial higher over the coming years as budget deficits steadily 

widen, especially if a fiscally expansionary policy is put in place

• The amount of maturing debt which needs to be refinanced is also scheduled to rise

• SOMA run-off will simply add to these factors, but will not be the main driver

• The Treasury should consider increasing auction sizes across all tenors in addition to the traditional manner of 

responding to cyclical debt needs, which relies primarily on the short end:

• Ex-ante cost considerations suggests that there is room to expand the T-bill universe and increase term issuance as 

well. Low inflation risk premia suggests the increase in TIPS issuance could be smaller

• Likely limits on issue sizes and the impact on auction stop out rates also suggest distributing the required increases 

rather than concentrating them at either the front end or the long end.

• Under this proposal, the WAM would gradually increase. Were the Treasury to concentrate increases at the front end 

of the curve, WAM is likely to fall.

• In terms of the timing of increases, 

• Given that higher borrowing needs are the primary driver for higher issuance needs over the medium term and not 

the change in the Fed’s reinvestment policy per se, the Treasury should carefully consider fiscal policies as it makes 

decisions about various debt management scenarios.. 

• If the median medium-term fiscal forecast is a good guide, Treasury should consider increasing coupon debt as soon 

as the November refunding and as late as Q1 2018. 

• In particular, our recommendation is that Treasury consider a broader increase in issuance across tenors.

.
3. Market implications of balance sheet normalization

31
Linear Normalization with the Potential for Nonlinear Credit Risks 

Part 1: Risk premium compression. Central bank balance sheet expansion, declining bond risk

premium, and lower yields induced rising investor bond demand and tighter credit spreads. Corporates filled

the demand gap with a surge in borrowing used for equity buybacks. Pure financial engineering.

Part 2: Risk Premium decompression, accelerators: Small increases in yields can potentially lead

to large changes in risk premium. Credit is the key transmission. Pro-cyclical behavior of investors who

‘piggy backed’ central bank purchases and ECB tapering are possible accelerators to the rise in US risk

premium in a tail risk event.

Part 3: Let markets clear. A downside risk in a stress scenario is a meaningful decline in risk assets. But

it isn’t systemic. Banks and households have not leveraged to higher asset prices. It is a financial engineering

shock.

Takeaways

32
Low Risk Premium Driven by Declining Real Yields

Risk premium have declined with lower real yields, counter to historic norm of risk narrowing with higher real yields

Source: Bank of America Merrill Lynch. Wall Street Journal. Haver Analytics. Tse Capital Calculations.

Risk Premium Low and Low Real Rates 

(median of percent rank for BBB credit spread, B-BBB spread, bond volatility index, and equity volatility index)

33
Cumulative Flows by Asset Class and Investor Type

Corporate Bonds Satisfy Surge in Investor Demand

Source: Federal Reserve Board. Tse Calculations.

Mutual fund and ETFs have been main vehicles for risk premium compression, and corporates filled the demand gap

34
Corporate Leverage is High, More Sensitive to Higher Rates

Source: Morgan Stanley. Barclays Bank. Federal Reserve Board. International Monetary Fund. Tse Calculations.

Consequence – corporates have peak leverage based on expectations of permanently lower rates and tight spreads

US Investment-Grade Net Leverage Ratio US Average Interest Coverage Ratio

35
Source: Federal Reserve Board. Bureau of Economic Analysis. Haver Analytics. Tse Capital Estimates.

Total Bond Supply to US Private Investors

Bond Demand-Supply = Larger Private Risk Premium 

More challenging than 2013 tantrum – investors have more bonds to absorb, risk premium on private debt will rise

36
Source: Bank of England Financial Stability Paper Number 42. Tse Capital Calculations.

Pro-cyclical Bond Inflows Amplify Impact on Credit Spreads

Redemptions from bond funds have a large impact on corporate bond spreads, amplifying the rise in credit spreads

Impact on Investment Grade Spreads to Investor Asset Redemptions

37
Source: European Central Bank. Goldman Sachs. Tse Capital Calculations.

ECB Tapering Adds Impulse to Higher US Yields

ECB asset purchases compressed German real yields and lowered yields in the US – already working in reverse

German Central Bank Bond Purchases 

Percent of GDP

38
Source: Tse Capital Calculations.

Stress Scenario Example: Rising Risk Premium – Faster Rise 

in Credit Spreads

Amplification from normalization could possibly come from wider credit spreads and be transmitted to equity 

buybacks and valuations

BBB Corporate Spread 

Volatility Index

Rise in ERM/

Decline in equities

Key Input: Judgment on rise in credit risk premium

-Stress scenario: spreads tighten as real rates rise (-15bp)

-Rise in corporate financing gap to 1% of GDP through Q1 2018 (+50bp)

-Amplification from bond redemptions (+100bp)

-No amplifiers from Euro area tapering or other factors

Key Input: VIX-Credit Spread Model

-Causality from credit spread to volatility rather than VIX exogenous

-Credit spread has an embedded short equity put 

-VIX +10 points from wider credit spreads

Key Input: VIX-Equity Risk Premium Model 

-Equity risk premium rises ~40%, still below historic norms 

-2018 S&P earnings 133 (+3.5% in EPS w/ NIPA profits +2.9%)

-Rise in 10-year real interest rates from 0.5% to 1.0%

-Partial pass-through of higher equity risk premium 

39
How Will The Repo Market be Impacted?

Fed on-the-run bond holdings versus the repo spread to general collateral (2y, 5y, 10yr)

Fed purchase of on-the-run Treasury securities ($ billions, quarterly) 

Source: New York Federal Reserve Bank. Bank of America Merrill Lynch. Tse Capital Calculations.

Fed normalization estimated to increase borrowing costs of benchmark 2s, 5s, and 10s by a modest 5bps on average

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Annex 1: Fed estimate of term premium impact

https://www.federalreserve.gov/econres/notes/feds-notes/effect-of-the-federal-reserves-securitiesholdings-on-longer-term-interest-rates-20170420.htm. 
Annex 2: June 2017 Survey of primary dealers (dated as this 

was before Fed announced details)

Expectations for the composition of the Federal Reserve System’s balance sheet, on average, in 2025, 

conditional on not moving to the ZLB at any point between now and the end of 2025

https://www.newyorkfed.org/medialibrary/media/markets/survey/2017/jun-2017-spd-results.pdf.