Press Releases

Minutes of the Meeting of the Treasury Borrowing Advisory Committee

(Archived Content)

The Committee convened in closed session at the Hay Adams Hotel at 8:30 a.m.  All members were present with the exception of Walter Muller, Ruth Porat, Ashok Varadhan, and Matthew Zames.  Counselor to the Secretary Antonio Weiss, Acting Assistant Secretary for Financial Markets Seth Carpenter, 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 Allen Zhang, John Dolan, Laura Lipscomb, Tom Katzenbach, Gabriel Mann, Chris Cameron, and Sundar Swaminathan.  Federal Reserve Bank of New York staff members Nathaniel Wuerffel and Lorie Logan were also present.
Deputy Assistant Secretary (DAS) Clark began by discussing recent trends in receipts.  DAS Clark noted the recent strength in corporate tax receipts, which may have been due in part by the accelerated depreciation legislation that was signed into law after the December 15, 2014 due date for corporate taxes.  Thus, some corporations may have paid more than required by law.  Accordingly, this creates some uncertainty around corporate tax receipts in March.  DAS Clark also noted that withheld taxes, the largest component of tax receipts, grew at approximately 5 percent on a year-over-year basis primarily due to a stronger economy.
DAS Clark then showed a chart with the eleven largest outlays in the fiscal year-to-date.  He noted that the largest year-over-year change was in the Health and Human Services category due primarily to higher Medicare and Medicaid costs.  The Treasury component was also higher during the same period, largely due to lower receipts from the government-sponsored enterprises.
Next, DAS Clark highlighted the primary dealer deficit forecasts in 2015, which were in line with the Congressional Budget Office (CBO) estimates but notably lower than those of the Office of Management and Budget (OMB).  While primary dealers forecasted higher deficits and net funding needs next year, this increase was not particularly significant.  Finally, DAS Clark highlighted increased Treasury non-marketable borrowing, due in part to activity in the State and Local Government Series (SLGS) window.
Director Pietrangeli turned the Committee’s attention to the January through March quarterly funding needs slide and noted that Treasury is on pace to raise $153 billion over the next quarter and is adequately financed for the quarter.  Director Pietrangeli also noted that net interest represents the largest component of future borrowing projections; however, he further noted that OMB’s interest rate assumptions were significantly higher than those predicted by market forwards.
Director Pietrangeli noted that financing needs over the medium-term were heavily dependent on what the Federal Reserve does with the SOMA portfolio.  He noted that if the Federal Reserve redeemed all of its holdings, competitive auction sizes would need to increase in order to raise an additional $675 billion over FY 2016 to FY 2018.
Next, Director Pietrangeli noted that declines in bid-to-cover ratios for bills and FRNs at the end of 2014 can be partly attributed to year-end-related balance sheet constraints of some auction participants; however, Director Pietrangeli noted that bid-to-cover ratios for these auctions improved during January.  Director Pietrangeli also noted that Foreign and International Awards for Intermediate Coupons increased by approximately 3 percent, possibly reflecting the attractiveness of U.S. sovereign yields relative to those of other sovereigns.
Finally, Director Pietrangeli reviewed several debt metrics.  As of December 31, 2014, the weighted average maturity (WAM) of the portfolio was approximately 68.3 months.  By 2025, this number would reach 85 months if the relative proportions for coupon issuance remained constant to meet projected borrowing needs.  He emphasized that the average maturity projections, and the associated underlying assumptions for future issuance, were hypothetical and not meant to convey future debt management policy or an average maturity target.  He also reiterated that Treasury would remain flexible in the conduct of debt management policy in order to finance the government at the lowest cost over time.
A member asked about the status of Treasury’s cash balance policy.  DAS Clark noted that Treasury believes that holding a higher cash balance is prudent and that Treasury continues to analyze potential refinements to the cash management framework.
Next, the Committee discussed the financing outlook for the rest of FY 2015 and concluded that, at this time, further coupon cuts were not necessary.
Pursuant to the Committee’s suggestion in November 2014 that further analysis be conducted on the WAM of the Treasury portfolio, the Committee turned to the charge on the WAM as a metric for Treasury’s debt portfolio. 
The presenting member began by noting that Treasury has used WAM as a simple proxy for the portfolio’s structure, cost, and risk.  However, the member noted that WAM may not sufficiently address other portfolio metrics, such as roll-over risk, issuance costs, or ownership concentrations of Treasury securities.
In the context of roll-over risk – which members agreed was a descriptor of interest rate funding risk – the presenting member suggested measurements that include the percentage of outstanding debt maturing over certain time periods could be a useful metric. The presenting member highlighted the cost of increasing WAM by noting that the cost of term premium is usually positive, and that there is a trade-off between reducing roll-over risk and reducing cost.  However, the presenting member cited term structure models that showed low or negative term premium in the current rate environment, and thus the potential for reduced issuance costs.
The member concluded his presentation by suggesting additional portfolio metrics that include: percentages of debt maturing in the near-term, ex-ante measures of issuance costs for various forms of Treasury debt, and Treasury market concentration data.
A robust discussion followed the presentation.  Several members suggested that Treasury examine supplemental issuance metrics and the communication strategy associated with such metrics.  The committee recommended that WAM be used along with other metrics, and noted the importance of clearly communicating Treasury’s debt management strategy.
Finally, the Committee turned to the charge on the use of buybacks as a debt management tool.  The presenting member explained that Treasury previously bought back $67.5 billion of outstanding bonds from March 2000 to April 2002 through 45 reverse auction operations.  The member noted that this buyback program was implemented in response to shrinking financing needs, but ended once funding needs began to increase.
The presenting member noted that buybacks could serve several debt management purposes including: enhancing liquidity of Treasury securities, reducing short-run variation in bill issuance or cash balances, reducing maturity peaks in outstanding debt, and as a tool to adjust Treasury’s debt profile.
The presenting member highlighted that on-the-run issues provide a high degree of liquidity that is valued by market participants, while off-the-run issues are susceptible to periods of lower liquidity.  Thus, buybacks could be used both to increase the liquidity of off-the-run securities and increase the size of the more liquid on-the-run securities.
The presenting member cited periods of overfunding such as the 2014 – 2015 period as an example of when buybacks could be used to maintain consistent issuance sizes for coupon securities or reduce swings in bill issuance and cash balances.  The presenting member noted that while bills serve as an efficient shock absorber for variations in funding needs, recent reductions in bill issuance have come at a period of high market demand for bills.  Accordingly, the use of buybacks could help to promote increased stability and predictability in Treasury auction sizes and cash balances.
The member presented Treasury’s upcoming debt maturity profile and noted the unevenness in maturities across different years.  The member stated that this pattern creates considerable variation in gross funding needs and makes smooth coupon issuance more challenging.  Accordingly, buybacks could be used to reduce the amount of debt maturing on future peak dates.  Furthermore, it was noted that buybacks could allow for more efficient changes to Treasury’s debt profile.  The presenting member illustrated potential changes to WAM that could be implemented through the use of a buyback program and noted that WAM could be either increased or decreased this way.  The member concluded by citing the use of buybacks by other sovereign issuers and implementation suggestions for such a program.
The committee discussed the presentation.  One committee member noted the importance of weighing the benefits of buybacks versus the cost of increased issuance to fund such a program. Another member pointed to Treasury’s anticipated funding needs beyond FY 2016, noting that on-the-run issues appeared likely to increase even without buybacks.  Several committee members also discussed the use of bond exchanges or debt switches as an alternative to buybacks.  The committee concluded that Treasury should examine further the cost and benefits of buybacks or bond exchanges as debt management tools.
The meeting adjourned at 11:30 a.m.
The Committee reconvened at the Department of the Treasury at 5:00 p.m.  All Committee members were present with the exception Walter Muller, Ruth Porat, Ashok Varadhan, and Matthew Zames.  The Chair presented the Committee report to Secretary Lew and Deputy Secretary 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 remainder of the January through March quarter and the April through June quarter (see attached).
The meeting adjourned at 6:00 p.m.
Seth B. Carpenter
Acting Assistant Secretary for Financial Markets
United States Department of the Treasury
February 3, 2015
Certified by:
Dana Emery, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
February 3, 2015
Curtis Arledge, Vice Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
February 3, 2015
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge – February 3, 2015
Fiscal Outlook
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?    
WAM and the Debt Portfolio
Historically, Treasury has used the Weighted Average Maturity (WAM) of the debt portfolio as a simple proxy for the portfolio’s structure, cost and risk. Since the 2008/09 financial crisis, Treasury has extended the WAM from 49 months to 68 months and the WAM is now at levels approaching multi-decade highs.
WAM, however, is just one metric and, as with all simple proxies, WAM does not fully capture several important characteristics of the Treasury portfolio. We would like the Committee to comment on WAM as a metric for measuring the debt portfolio. What other metrics should Treasury monitor and publish with respect to the Treasury portfolio? Please discuss.
In the early 2000s, Treasury used buybacks as a tool to enhance the liquidity of its benchmark issuance during a time of budgetary surpluses.  We would like the Committee to comment on the use of buybacks during a time of budgetary deficits, and whether such a tool could be used to assist Treasury in managing the maturity structure of debt portfolios, secondary market liquidity, and cash.
Financing this Quarter
We would like the Committee’s advice on the following:
  • The composition of Treasury notes and bonds to refund approximately $80.6 billion of privately-held notes maturing on February 15, 2015.
  • The composition of Treasury marketable financing for the remainder of the January-March 2015 quarter, including cash management bills.
  • The composition of Treasury marketable financing for the April – June 2015 quarter, including cash management bills.

TBAC Recommended Financing Table Q1 2015 and TBAC Recommended Financing Table Q2 2015