1. Overview of U.S. Treasury Debt Management
November 16, 2018
Overview of U.S. Treasury Debt Management
Karthik Ramanathan Director Office of Debt Management June 2008

2. Contents Overview and Objectives Composition of Portfolio
November 16, 2018
Overview and Objectives
Composition of Portfolio
Determinants of Borrowing Needs and Policy Tools
International Investments
Overview of TIPS Program

3. I. Overview and Objectives
November 16, 2018
Size of Operations is Hard to Grasp
$4.4 trillion issued in 219 auctions in FY 2007
$238 billion paid in net interest in FY 2007
represented 8.7% of Government expenditures
More than $1 trillion moved between accounts on NBES daily
More than $565 billion traded daily (primary dealers)
For comparison total global equity trading is under $420 billion daily
$4.6 trillion in marketable debt outstanding as of May 31, 2008
represents roughly a quarter of U.S. credit markets
* includes holdings by the Federal Reserve

4. Treasury Issuance Objectives and Constraints
November 16, 2018
Our Objective
Lowest cost of financing over time
Constraints
Uncertainty: Forecast errors, legislation, etc. all create uncertainty in deficit forecasts, debt limit problems
Size: Treasury is too large to behave opportunistically
Fluctuations in non-marketable debt: Savings Bonds, State and Local Government Securities
Short-term balances: Adequate cash balances to cover expenses

5. Flexibility is Key as a Result of Large Swings in the Deficit
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6. Lowest Cost over Time Implies a Diversified Debt Portfolio
November 16, 2018
Spread debt across maturities to…
Reduce risk
Diversify the investor base
Improve cash management
Facilitate regular and predictable issuance

7. Deep, Liquid Markets Promote Capital Flows
November 16, 2018
Promote market transparency
Provide a structured framework for investor participation
Be available to customers for feedback and guidance
Listen and be credible
Ensure regulation
Broadly speaking, to protect investors
Establish consistent, fair practices across markets
Create a level playing field
Instill investor confidence in markets
But don’t over regulate
Don’t interfere with price discovery
Let bond market participants develop trading practices
Let market participants work through problems—don’t overreact.
Encourage solutions and innovation through market based, private working groups

8. Treasury Issuance Outcomes
November 16, 2018
Policy Outcomes
We are regular market participants, not market timers -- “Regular and predictable”
We don’t react to interest rate levels
We need flexibility
We strive for transparency

9. Transparency and Predictability Leads to Greater Investor Participation over the Long Run
November 16, 2018
Average 2007 Daily Trading Volume = $565 Billion
Source: FRB-NY

10. II. Composition of Portfolio
November 16, 2018
Marketable Debt
$4.6 trillion outstanding, can be traded in the secondary market
Sold at auction, rates set via competitive bidding
Non-Marketable Debt
$515 billion outstanding
Can only be sold to Treasury
Sold by subscription, rates set administratively
Savings bonds, State and Local Government Series (SLGS)
Government Account Series
Approximately $4.2 trillion (mostly special non-marketables) in 135 funds
Federal Old Age Survivors Fund $2.1 trillion
Civil Service Retirement Fund $679 billion
Hospital Insurance Trust Fund $323 billion

11. Non-Marketable Treasury Securities
November 16, 2018
State and Local Government Series (SLGS)
$280 billion outstanding
Special securities issued to municipalities to assist them with compliance on arbitrage-rebate regulations
U.S. Savings Bonds
$195 billion outstanding
Both Series E and Series I (inflation protected)
Targeted at small retail investors
Foreign Government Series and Other (ex Govt Acct)
$40 billion, (e.g., Brady bond zeros)

12. Composition of Marketable Debt
November 16, 2018

13. Composition of Non-Marketable Debt
November 16, 2018

14. Composition of Total Debt Outstanding
November 16, 2018
$9.4 trillion outstanding

15. Interest Costs on Marketable Debt
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16. III. Determinants of Borrowing Needs and Policy Tools
November 16, 2018
Changes in Cash Balance
Budget Deficit/Surplus
Economic Outlook
Volume of Maturing Issues (rollover of existing issues)

17. …And, Volatility in Cash Balances
November 16, 2018
Key Outlay Dates
1st of each month – Medicare, SSI, VA, CSRDF
3rd of each month Main Social Security payments
2nd/3rd/4th Wed of each month Soc. Sec. cycle payments
Feb. 15, May 15, Aug. 15, Nov. 15 Interest payment dates—
Feb 1 - April 15 – Individual tax refunds
Key Receipt Dates
1st of Month – Individual withheld taxes
Mar. 15, Jun. 15, Sept. 15, Dec. 15- Corporate Taxes
Jan. 15, Apr. 15, Jun. 15, Sept. 15 Individual Non-withheld Taxes

18. Estimating Financing Needs
November 16, 2018
Each morning, the Office of Fiscal Projections (OFP) updates its forecasts for government financing using the latest available data
Revenues
Outlays
(Deficit)/
Surplus =
Defense Spending
Education Expenses
Social Security
Medicare/Medicaid
Federal employee payroll
ETC…
Corporate Taxes
Individual Taxes
Excise Taxes
Estate and Gift Taxes
Customs Duties
FY2008 $2.52 trillion +
FY2008 ($2.93 trillion) =
FY2008 ($410 billion)
Based on OMB’s Budget of the United States Government FY2009

19. Average Absolute Federal Budget Forecast Errors FY 1997-2006
November 16, 2018
*Average Error for FY 1997 – 2006 based on forecasts by CBO, OMB, and Primary Dealers

20. Debt Management Policy Tools
November 16, 2018
Auction Sizes
Auction Frequency
Security Offering Menu
Auction Regulations
Market monitoring, consultation, and surveillance

21. IV. International Investments
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22. Foreign Holdings as a Percent of Total Marketable Debt
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23. V. Overview of TIPS Program
November 16, 2018
First TIPS were issued in January Treasury now is the largest issuer of inflation linked bonds globally.
26 issues ranging from 2009 to The TIPS curve is complete out to 10 years.
To date only three TIPS issues have matured – in July 2002, January 2007, and January 2008.
As of May 31, 2008 TIPS market capitalization totaled over $494 billion; or about 11% of marketable Treasuries outstanding.
Average daily trading volume in 2008 is near $10 billion according to primary dealer estimates .
There is a higher concentration of dealer volume relative to nominal Treasuries. TIPS ownership is also more concentrated.

24. Additional Information
November 16, 2018
Office of Debt Management
Federal Reserve Information