The Committee convened in a closed session at the Department of the Treasury at 9:00 a.m. All members were present. Under Secretary for Domestic Finance Nellie Liang, Fiscal Assistant Secretary David Lebryk, Assistant Secretary for Financial Markets Josh Frost, Deputy Assistant Secretary for Federal Finance Brian Smith, Director of the Office of Debt Management Fred Pietrangeli, and Deputy Director of the Office of Debt Management Nick Steele welcomed the Committee. Other members of Treasury staff present were Chris Cameron, Dave Chung, Gabriella Csepe, Tom Katzenbach, Chris Kubeluis, Kyle Lee, Jeff Rapp, Brett Solimine, Renee Tang, Brandon Taylor, and Thomas Teles. Federal Reserve Bank of New York staff members Johnny Elliot, Susan McLaughlin, and Nathaniel Wuerffel were also present.
Under Secretary Liang opened the meeting by welcoming three new members of the Committee: Lew Alexander, Jason Granet, and Alex Schiller. Liang then briefly outlined recent efforts related to strengthening Treasury market resilience and other priorities.
Director Pietrangeli provided brief highlights of changes in receipts and outlays through Q4 FY2022. Receipts totaled $4.896 trillion, an increase of $850 billion (21%) compared to the same period last year, reflecting an increase in wage-related individual tax receipts, notable capital gains, and elevated corporate taxes. Outlays totaled $6.210 trillion, a decrease of $612 billion (-9%) compared to the same period last year, largely reflecting the wind-down of several COVID-related spending initiatives.
Pietrangeli then turned to deficit and privately-held marketable borrowing projections. Net marketable borrowing estimates from the primary dealers over FY2023 and FY2024 increased by a total of $205 billion since the last quarter. Dealers noted that their confidence around their estimates was low and that risks to their borrowing estimates were to the upside, due to uncertainty around monetary and fiscal policy and the strength of the economy. Dealers also noted that the outlook for SOMA redemptions was a significant source of uncertainty, which was reflected in the roughly $600 billion interquartile range in dealers’ estimates for SOMA redemptions in FY2024.
Pietrangeli then discussed primary dealers’ expectations for Treasury issuance. Nearly all dealers anticipated no changes to nominal coupon auction sizes this quarter and argued that near-term financing needs could be met with increased issuance of Treasury bills. Dealers highlighted robust demand for Treasury bills and that bills as a share of marketable debt outstanding are currently at the low end of the 15 to 20 percent range recommended by the Committee.
Debt Manager Taylor then reviewed primary dealers’ views on a potential Treasury buyback program. Dealers generally thought a Treasury buyback program was worth further exploration. Some dealers focused on potential benefits for market liquidity, while others noted the potential utility for cash and maturity management. Most recommended that potential buybacks be conducted in a regular and predictable manner, consistent with Treasury’s framework for debt issuance. In terms of financing the purchases, most dealers suggested that the necessary increases to matched-maturity on-the-run issuance sizes would not meaningfully affect the maturity distribution of the debt, would be manageable to auction, and would not materially erode the liquidity premia associated with on-the-run securities. On the size of a potential program focused on market liquidity, most advocated for scaling buybacks to help support liquidity in a typical market environment. Finally, dealers highlighted the importance of clear communication from Treasury about the goals and implementation details of any potential program.
The Committee asked about Treasury’s next steps regarding buybacks. Deputy Assistant Secretary Smith indicated that Treasury was still gathering information regarding the potential costs and benefits of buybacks under a variety of use cases, including liquidity support and cash and maturity management, and that Treasury had not yet made any decision about whether or how to implement a buyback program. The Committee thought it was prudent for Treasury to study this issue further.
Debt Manager Lee then provided a summary of primary dealer expectations for TIPS issuance. Dealers broadly noted TIPS auction size increases this calendar year have been well absorbed, even with secondary market liquidity declining somewhat recently. However, dealers were split on whether Treasury should consider further gradual increases of TIPS auction sizes next year or keep auction sizes unchanged. Those supportive of increases expected TIPS demand to remain robust into next year and noted further increases would help bring the TIPS share of total debt outstanding closer to pre-COVID levels. Most of these dealers thought gradual increases should focus on short- and intermediate-dated tenors. Dealers supportive of keeping TIPS auction sizes unchanged next year noted risks that the TIPS demand could wane next year if inflation declined.
The Committee then discussed a presentation on the benefits and risks of additional post-trade transparency for secondary market transactions in Treasury securities. The presentation began with a discussion of the history of reporting and dissemination regimes across various fixed income markets and noted that the evolution of the Treasury market warranted study of additional transparency. In addition, the presenting member noted that most comments from Treasury’s request-for-information (RFI) recommended that any additional transparency be phased-in gradually and include dissemination caps and delays. The presenting member then reviewed studies of post-trade transparency in other fixed income markets, highlighting tighter bid-ask spreads, but declines in trading volumes and increased difficulty executing larger trades.
The presenting member concluded by recommending that additional transparency be implemented in a gradual manner and begin with on-the-run transactions in nominal coupon securities, subject to appropriate caps and delays for large trades. However, less liquid securities, such as off-the-runs, should be subject to periodic aggregate releases, and decisions for further dissemination should be contingent on evaluating the impact of releasing data for on-the-runs. Following the presentation, the Committee discussed the potential benefits and risks of additional transparency, with most members agreeing that there would be limited harm to releasing transactions for on-the-runs, subject to appropriate caps and delays. The Committee generally supported further evaluation of additional transparency for other Treasury securities after reviewing the effects of dissemination of on-the-runs. Committee members expressed different opinions regarding the likely effects of additional transparency in times of heightened market stress. The Committee suggested further analysis to consider the effects of additional transparency during these episodes.
Finally, the Committee discussed its financing recommendation for the upcoming quarters. The Committee recommended that Treasury maintain nominal coupon auction sizes at current levels and noted that there is currently ample scope to increase the share of Treasury bills within the marketable debt portfolio. The Committee recommended that the December 5-year TIPS reopening auction size should be increased by $1 billion and suggested additional discussion at future meetings regarding additional incremental increases in TIPS auction sizes.
The Committee adjourned at 2:30 p.m.
The Committee reconvened at 5:00 p.m. The Chair summarized key elements of the Committee report for Secretary Yellen and followed with a brief discussion of recent market developments.
The Committee adjourned at 5:30 p.m.
_____________________________
Brian Smith
Deputy Assistant Secretary for Federal Finance
United States Department of the Treasury
November 1, 2022
Certified by:
_________________________________
Beth Hammack, Chair
Treasury Borrowing Advisory Committee
November 1, 2022
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge – November 1, 2022
Fiscal Outlook
Taking into consideration Treasury’s short, intermediate, and long-term financing requirements, as well as the variability in financing needs from quarter to quarter, what changes, if any, do you recommend to Treasury issuance? Please also provide perspectives regarding market expectations for Treasury issuance, the effects of change in SOMA holdings, the evolution of Treasury holdings by different types of investors, as well as auction calendar construction.
Post-Trade Treasury Market Transparency
Treasury recently received public comments in response to its request for information (RFI) on additional post-trade transparency in secondary market transactions of Treasury securities. Responses were broadly supportive of efforts to incrementally increase transparency, but recommendations varied regarding the pace and extent of additional transparency. Commenters noted potential benefits, such as improving price discovery and enhanced investor confidence, and potential risks, such as increasing the cost of trading large positions in less liquid securities. Many supported steps to minimize those risks by limiting dissemination for large trades or for certain securities using trade size caps and delays as well as aggregation. They noted similar approaches used for transparency for other fixed income securities and for interest rate derivatives.
How does the Committee assess these benefits and risks of additional public transparency for post-trade transactions? What are the Committee's views on varying treatment for different security types, dissemination caps and delays, and implementation approaches? How would the Committee measure the effectiveness of additional post-trade transparency?
Financing this Quarter
We would like the Committee’s advice on the following:
- The composition of Treasury notes and bonds to refund approximately $55.3 billion of privately- held notes and bonds maturing on November 15, 2022.
- The composition of Treasury marketable financing for the remainder of the October-December 2022 quarter.
- The composition of Treasury marketable financing for the January-March 2023 quarter.