The Committee convened in a closed session at the Department of the Treasury at 9:00 a.m. All members except Anshul Sehgal were present. Andrew Hollenhorst from Citigroup was also present to assist the Committee Chair. Acting Assistant Secretary for Financial Markets Brian Smith, Director of the Office of Debt Management Fred Pietrangeli, and Deputy Director of the Office of Debt Management Tom Katzenbach welcomed the Committee. Other members of Treasury staff present were Nahiomy Alvarez, Chris Cameron, Nicholas Chisholm, Dave Chung, Gabriella Csepe, Shahnewaz Khan, Chris Kubeluis, Kyle Lee, Hunter McMaster, Brian Plesser, Gavin Ross, Joshua Stachura, and Renee Tang. Federal Reserve Bank of New York staff members Oliver Giannotti, Ellen Correia Golay, Brett Rose, and Kyle Watson were also present.
Acting Assistant Secretary Smith opened the meeting and welcomed Jill Funk as the newest member of the Committee. Following his remarks, Treasury counsel presented the annual review of Committee guidelines.
Director Pietrangeli highlighted changes in receipts and outlays during Q1 FY2025. Receipts totaled $1.083 trillion, a decline of $25 billion (-2%) compared to the same period last year primarily due to base effects from extensions and deferrals to both individual and corporate taxes that shifted payments from FY2023 to FY2024. Outlays totaled $1.794 trillion, an increase of $176 billion (11%) compared to the same period last year, which was largely due to the impact of higher interest costs, inflation adjustments to transfer payments, and increases in defense expenditures.
Pietrangeli then turned to privately-held net marketable borrowing projections, noting that the latest estimates from the dealers indicated that Treasury is well funded through FY2025 but that larger funding gaps are forecast in FY2026 and beyond. He also indicated that dealers voiced uncertainty regarding borrowing needs, citing the path of monetary and fiscal policy, the duration of the Federal Reserve System Open Market Account (SOMA) redemptions, and the economic outlook. Pietrangeli concluded by reviewing new slides that aggregate Treasury buyback results and metrics.
Deputy Director Katzenbach reviewed primary dealers’ expectations for coupon issuance, noting that there were minimal changes to their views since October. All primary dealers expected nominal coupon issuance to remain unchanged at the February refunding. Looking ahead, most continued to think that modest increases might be needed sometime in late 2025 or 2026. With respect to TIPS issuance, most dealers anticipated $1 billion increases to both the March 10-year reopening and the April 5-year new issue. Dealers also anticipated that the size of the February 30-year TIPS new issue would remain unchanged.
Debt Manager Stachura then summarized primary dealers’ views on potential changes to the size and composition of the Federal Reserve’s SOMA portfolio. Most dealers expected that SOMA redemptions (quantitative tightening or QT) will end in June or July of 2025, but all dealers expected that QT will conclude by Q1 CY2026. Dealers expected that the Federal Reserve will reinvest proceeds from MBS principal payments into U.S. Treasury securities shortly after ending QT. Most dealers believed that the Federal Reserve’s reinvestment of MBS principal will be concentrated at the short end of the curve, especially in Treasury bills. Dealers viewed shortening SOMA’s WAM as consistent with comments from Federal Reserve officials. The general expectation among dealers was that the Federal Reserve will wait until Q1 2026 or later to expand its balance sheet to maintain ample reserve balances.
Senior Advisor for Debt Strategy and Policy Alvarez proceeded to review primary dealers’ views on foreign demand for Treasury securities over the last year. Dealers observed moderate foreign official demand for Treasuries in 2024 but more robust foreign private demand. Dealers pointed to changes in trade patterns, cross-currency hedging costs, geopolitical tensions, and the strengthening of the U.S. dollar as potential headwinds to foreign official demand. By contrast, dealers observed healthy foreign private demand from levered investors located in the UK, Euro area, and Cayman Islands. These more price-sensitive investors were reportedly motivated by basis trading opportunities and attractive yield differentials. Dealers expected these trends to continue over the next year.
The Committee then turned to a discussion of Treasury’s buyback program. The presenter highlighted Treasury’s tendency to sometimes buy back less than the stated maximum purchase amount and concluded that this behavior was consistent with the program’s liquidity support objective. The presenter also observed that Treasury’s purchases of nominal coupon securities showed a balance between relative value considerations and liquidity provision. The presenting member concluded that the current buyback program is broadly achieving its stated objectives. The presenter then suggested that Treasury could study potential adjustments to its maximum purchase amounts, both in aggregate and by sector. The presenter also recommended that Treasury study the cost and benefits of scheduling buyback operations around regular intra-month spikes in off-the-run trading volumes, among other things.
The Committee then discussed the second charge addressing developments in central clearing of U.S. Treasuries. The presenting member began by reviewing the SEC’s adoption of its central clearing rule in December 2023 and current industry preparedness. It was noted that several industry groups have advocated for the SEC to postpone implementation dates by at least 12 months. The presenting member proceeded to review details on existing central counterparty (CCP) clearing models and those in development for market participants to comply with the rule. While FICC is currently the only U.S. Treasury CCP, the member pointed out that both the CME and ICE have announced their intention to offer clearing solutions in the Treasury securities market. The presenter suggested that the existence of multiple CCPs could facilitate competition and innovation but may introduce additional costs and complexity.
The Committee then discussed its financing recommendation for the upcoming quarters and advised that Treasury maintain nominal coupon and FRN auction sizes at current levels. The Committee discussed possible ways for Treasury to communicate the timing of potential future changes to auction sizes, including a discussion about Treasury’s forward guidance in recent quarters and how it could evolve in light of the outlook for borrowing needs.
The Committee adjourned at 12:30 p.m. for lunch.
The Committee reconvened at 1:30 p.m.
The Committee turned to its financing recommendation for TIPS and advised that Treasury increase all tenors by $1 billion this refunding quarter.
The Committee adjourned at 2:00 p.m.
The Committee reconvened at 2:30 p.m.
Finally, the Chair summarized key elements of the Committee report for Secretary Bessent and followed with a brief discussion of recent market developments.
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Brian Smith
Acting Assistant Secretary for Financial Markets
United States Department of the Treasury
February 4, 2025
Certified by:
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Deirdre Dunn, Chair
Treasury Borrowing Advisory Committee
February 4, 2025
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge – February 4, 2025
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 changes in SOMA holdings, the evolution of Treasury holdings by different types of investors, as well as auction calendar construction.
Treasury Buybacks
Treasury has been conducting regular buybacks since May 2024 with liquidity support and cash management objectives. Please assess the effectiveness of the buyback program to date in achieving its objectives. Are there any changes to the program that Treasury should consider? Please elaborate.
Developments in Central Clearing
In December 2023, the SEC adopted rules intended to expand central clearing of Treasury security and repo transactions. Please comment on developments in the process for implementing these rules. How do you expect the sponsored access and agent clearing models outlined by FICC to be used by indirect participants? Do you expect clearinghouse members to continue posting margin on behalf of some clients? What are the prospects for clearinghouse members to clear trades that clients execute with other counterparties (i.e., “done away”)? To what extent may market participants decide to become clearinghouse members (rather than indirect participants)? Several firms have announced intentions to launch new Treasury securities clearinghouses. What are the potential benefits and costs of multiple clearinghouses? What lessons can be learned from other markets, some of which have several competing clearinghouses and others of which have only one?
Financing this Quarter
We would like the Committee’s advice on the following:
- The composition of Treasury notes and bonds to refund approximately $106.2 billion of privately-held notes maturing on February 15, 2025.
- The composition of Treasury marketable financing for the remainder of the January-March 2025 quarter.
- The composition of Treasury marketable financing for the April-June 2025 quarter.