The Committee convened in a closed session at the Hay Adams Hotel at 11:40 a.m. All members were present. Acting Assistant Secretary for Financial Markets Daleep Singh, Deputy Assistant Secretary for Federal Finance James G. Clark, and Director of the Office of Debt Management Fred Pietrangeli welcomed the Committee. Other members of Treasury staff present were Deputy Director John Dolan, Jonah Crane, Jared Roscoe, Ken Phelan, Michael Puglia, Gabe Mann, Tom Katzenbach, and Chris Cameron. Federal Reserve Bank of New York staff members Lorie Logan, Nathaniel Wuerffel, and Jonathan Hill were also present.
Deputy Assistant Secretary Clark began with an overview of the fiscal outlook, highlighting that corporate tax receipts have decreased slightly year-over-year and that Treasury’s net expenditures have risen as compared to the equivalent period last year. Given the projections for net borrowing needs, DAS Clark commented that bill supply is in the process of increasing to a level that is generally in line with TBAC’s February recommendation. A discussion on increased bill issuance and coupon auction sizes ensued. Members broadly agreed that no further adjustments to coupon issuance are necessary at this time, but that the demand for bills should continue to be evaluated over the coming quarters – particularly in light of money market reform implementation later this year.
DAS Clark noted that Treasury continues to evaluate responses to the recent Request for Information on the Evolution of the Treasury Market Structure. DAS Clark noted that preliminary analysis suggests that respondents broadly support the collection of data on Treasury market transactions by the official sector. DAS Clark also noted that there was substantially more variation in responses on whether, and to what extent, those data should be made available to the public. DAS Clark concluded that many responses also suggested that the official sector should study clearing and settlement procedures involving non-FICC members. Discussion ensued regarding the extent to which transactions in the Treasury market should be publically reported, with a wide range of views being expressed. The Committee concluded that the pros and cons associated with reporting these data must be carefully weighed. Many suggested that official sector analysis of the data that will be collected is critical to informing the appropriate framework for post-trade transparency.
Next, the Committee turned to a presentation on the dynamics of overseas fixed-income markets and their effect on the demand for Treasury securities. The presenting member began by highlighting the economic outlook for major economies outside the United States. It was noted that in recent months, and since the previous quarterly refunding, growth and inflation forecasts for most of these economies have been revised lower. As a result, global monetary policy is expected to be, on the whole, more stimulative than previously thought, and bond yields in major economies outside the United States will likely remain at low levels in the near-term.
The presenting member then turned to the effect that these dynamics have on the market for Treasury securities. It was noted that the source of marginal demand for Treasury securities has shifted from official to private sector investors in the last year. Several reasons were cited for this, including disappointing economic data from the G10, a decrease in foreign official holdings of Treasury securities due to changes in foreign central bank reserve holdings, and an increase in foreign private holdings, particularly in long-duration securities.
Next the presenting member turned to the effect on other sovereign debt issuers. It was noted that record low interest rates in Europe are having several broad effects. Peripheral sovereign issuers in Europe appear to be skewing issuance towards longer maturities. Finally, many sovereign issuers in Europe have emphasized greater flexibility with their issuance policies – such as by increasing transparency, diversifying funding sources, or adjusting the frequency and size of auctions.
Finally, the medium-term challenges for Treasury were addressed. The presenting member noted that a rise in interest rates may put interest costs of the Federal debt into greater focus. In addition, the presenting member stated that Treasury has near-term flexibility in determining its issuance profile, but several medium-term risks could act as constraints. These include an economic downturn, changes to Federal Reserve policy regarding the reinvestment of Treasury security holdings in the SOMA portfolio, and a decline in demand for Treasuries from less price sensitive investors.
A discussion by the Committee then ensued. One member noted that over the past seven years, a large amount of global sovereign debt issuance has been facilitated by a confluence of public sector policies and economic outcomes that are not likely to persist in the long term. As such, several Committee members recommended that Treasury should consider policies to address these issues. In particular, some noted that Treasury should consider policies that balance the commitment to be regular and predictable with an appropriate level of flexibility.
The Committee adjourned at 1:30 p.m. for lunch.
The Committee reconvened at the Department of the Treasury at 5:00 p.m. All Committee members were present except Jason Cummins. The Chair presented the Committee report to Deputy Secretary Sarah Bloom Raskin.
A brief discussion followed the Chair’s presentation but did not raise significant questions regarding the report’s content.
The Committee then reviewed the financing for the remainder of the April through June quarter and the July through September quarter (see attached).
The meeting adjourned at 6:00 p.m.
James G. Clark
Deputy Assistant Secretary for Federal Finance
United States Department of the Treasury
May 3, 2016
Dana Emery, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 3, 2016
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge – May 3, 2016
Taking into consideration Treasury’s short, intermediate, and long-term financing requirements, as well as uncertainties about the economy and revenue outlook for the next few quarters, what changes to Treasury’s coupon auctions do you recommend at this time, if any?
Global Economic Conditions and Sovereign Issuance Challenges
To what extent has fixed income dynamics in overseas markets affected demand for US Treasuries? Please also assess the challenges faced by the major global sovereign borrowers over the medium term. How are these challenges similar to or different from the case of the United States?
Financing this Quarter
We would like the Committee’s advice on the following:
- The composition of Treasury notes and bonds to refund approximately $60.1 billion of privately-held notes maturing on May 15, 2016.
- The composition of Treasury marketable financing for the remainder of the April-June 2016 quarter, including cash management bills.
- The composition of Treasury marketable financing for the July – September 2016 quarter, including cash management bills.