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3/19/2020

Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

Minutes of the Meeting of the Treasury Borrowing Advisory
Committee of the Securities Industry and Financial Markets
Association May 1
May 2, 2018

The Committee convened in a closed session at the Hay-Adams Hotel at 9:30 a.m. All members
were present. Counselor to the Secretary Craig Phillips, Deputy Assistant Secretary for Financial
Markets Clay Berry, Deputy Assistant Secretary for Federal Finance Laura Lipscomb, Director of
the O ice of Debt Management Fred Pietrangeli, and Deputy Director of the O ice of Debt
Management Nick Steele welcomed the Committee, including the newest member to the
Committee, Gagan Singh. Other members of Treasury sta present were Ayeh Bandeh-Ahmadi,
Chris Cameron, Dave Chung, Stephen Clinton, Sarah Hirsch, Tom Katzenbach, Jerry Kelly, Amyn
Moolji, Ken Phelan, Renee Tang, and Brandon Taylor. Federal Reserve Bank of New York sta
members Nathaniel Wuer el, Susan McLaughlin, and Ellen Correia Golay were also present.
Counselor Phillips began by announcing that Elizabeth Hammack and Daniel Dufresne will
become the new Chair and Vice Chair of the Committee later this year. Phillips thanked Jason
Cummins and Stuart Spodek for their leadership as Chair and Vice Chair over the past two years.
Next, the Committee turned to a charge on the potential benefits of 2-month bill issuance and
an additional weekly settlement cycle for bills. The presenting member began by discussing
projections for increased borrowing needs over the next several years, expectations for
significant and sustainable future demand for bills, and concentrations of bill auction
settlements on Thursdays.
The presenting member noted that Congressional Budget O ice (CBO) estimates indicate
considerable increased borrowing needs over the 10-year forecast window. As discussed at the
November 2017 TBAC meeting, the Committee agreed that between one-quarter and one-third
of cumulative future financing gaps should be met by bill issuance.
Next, the presenting member noted several characteristics of the market that indicate sustained
demand for bills. Bill holdings by investor class indicate that foreign investors and money
market funds own the largest proportion of the outstanding supply. MMFs, in particular, have
increased bill holdings since regulatory changes were enacted in 2016. Moreover, the associated
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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

re-allocation from prime to government MMFs has remained durable despite an increase in yield
premium for prime MMFs.
The presenting member noted recent portfolio allocations by government MMFs to repo and
argued that if the yield spread between repo and bills were to narrow, it would likely drive
additional flow from repo to bills. Furthermore, an analysis was presented showing the
persistence of a bill issuance premium, which tends to be greatest at the short-end of the bill
curve, thereby supporting the idea of increasing issuance in that sector. Lastly, the introduction
of a 2-month bill would allow for smaller auction sizes in other tenors, allowing for greater
flexibility in funding future projected financing gaps.
Finally, the presenting member detailed the concentration of funding on Thursdays and the
potential benefits of an additional weekly settlement cycle. Specifically, the presenting member
recommended that a new 2-month bill program settle on Tuesdays, and argued in favor of
moving the existing 1-month bill to the same Tuesday cycle. Adding a 2-month bill on a new
settlement day would both reduce concentration on Thursdays and allow for smaller bill
auction sizes, all else equal. Moving the 1-month bill would support liquidity at the short-end
and allow investors to ladder maturities in this segment of the market. Moreover, diversifying
settlement volumes across days helps mitigate the intraday operational requirements for
clearing and settling. Treasury also benefits from an additional bills settlement day by allowing
for greater ability to manage the 5-day cash balance target.
The presenting member noted that the additional settlement day could also alleviate pressure
in repo funding markets around the concentrated Thursday settlement days, and indicated that
ample liquidity exists for investors to reinvest between settlement cycles.
The Committee then discussed current bill market dynamics and agreed that demand should
remain strong, while potentially increasing among some types of investors. In addition, the
Committee agreed that the amount of net bill issuance should increase, given the CBO’s
projections for increased borrowing needs over the next several years. Furthermore, all
Committee members agreed that a new 2-month bill could be introduced to fill that funding gap
based on evidence for strong short-end demand. In addition, the Committee generally agreed
that further study was warranted to assess a Tuesday settlement cycle as a means to reduce
funding congestion and increase operational resiliency. The Committee recommended that
Treasury evaluate ways to facilitate the introduction of a new 2-month bill, paired potentially
with a 1-month bill, on a Tuesday settlement cycle.

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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

The meeting then continued with a review of the TBAC charter and Committee guidelines by
Treasury counsel.
Next, Director Pietrangeli provided an overview of the fiscal situation. Pietrangeli noted that for
the first half of FY2018, receipts totaled $1,497 billion, an increase of two percent year-over-year,
led by a $47 billion increase in withheld taxes and an $11 billion increase in non-withheld taxes.
The gains were partially o set by a $14 billion decrease in corporate taxes. Outlays totaled
$2,097 billion over the same timeframe, an increase of five percent. Notable increases include
$32 billion for interest on the public debt as well as payments made to Government-Sponsored
Enterprises related to valuation of Deferred Tax Assets as a result of the Tax Cuts and Jobs Act
(TCJA), $19 billion for increased enrollment and increased average benefit payments for Social
Security, $16 billion for Medicare, and $15 billion for the Department of Homeland Security
including increased payments for disaster relief.
Pietrangeli also commented on issuance of State and Local Government Securities (SLGS) over
the past quarter. Issuance was down, partly due to a suspension of SLGS issuance during the
debt limit impasse, as well as lower demand for SLGS as rules for advanced refundings were
modified in the TCJA.
Based on the near-term fiscal outlook, Treasury recently announced privately-held net
marketable borrowing estimates of $75 billion for the April to June 2018 quarter, assuming an
end-of-June cash balance of $360 billion, and $273 billion for the July to September quarter,
assuming an end-of-September cash balance of $350 billion. The privately-held net marketable
borrowing estimates take into account the Federal Reserve’s normalization of its System Open
Market Account (SOMA) portfolio. Specifically, the estimates exclude SOMA rollovers (auction
“add-ons”) and include private financing required due to SOMA redemptions. For FY2018, total
privately-held net marketable borrowing is estimated at $1,118 billion. Pietrangeli noted that
the O ice of Management and Budget (OMB) and CBO do not provide a “privately-held”
estimate of net marketable borrowing.
Pietrangeli then acknowledged that recent projections by OMB and CBO indicate borrowing
needs will increase over the ten-year forecast window. As a result, these projections create a
funding gap that Treasury will need to fill with increased issuance. Finally, Pietrangeli discussed
demand for Treasury securities, citing stable bid-to-cover ratios and a rebound of foreign
demand in FY2018 Q2.
Next, Deputy Assistant Secretary Lipscomb commented on bill issuance over the last several
months. Following the resolution of the debt limit impasse, Treasury began to issue more bills
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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

to rebuild its cash balance to meet the stated policy target of a minimum of five days of future
outflows, with a floor of $150 billion, and to address seasonal borrowing needs associated with
tax refund payments. Between February 9 and the end of March, aggregate Treasury bill supply
increased more than $300 billion. Lipscomb noted that bill supply generally fluctuates over the
short-term in line with seasonal needs, thereby enabling Treasury to maintain its policy of
regular and predictable coupon issuance. Given the circumstances, bill issuance increased at a
faster than ordinary pace, which some market commentators have cited as one factor a ecting
broader money market rates over the period, particularly because bill issuance was easily
quantifiable compared to other factors.
The Committee began a discussion of short-term rates and the e ect of rapidly increasing bill
issuance over the recent period. The Committee agreed that recent increases in broader money
market rates are due to a confluence of factors, including but not limited to, the increase in bill
issuance. The Committee also remarked that restoring the cash bu er is a prudent policy
objective.
Closing the discussion on bills, Lipscomb noted that, in April, Treasury has paid down more than
$100 billion in bills. Feedback from market participants indicate that expectations are for
relatively stable net bill issuance moving forward until seasonal needs require an uptick in
issuance later in the year. By the end of FY2018, however, the level of bills outstanding is
expected to be below the peak observed in March 2018, given current fiscal forecasts.
Lipscomb also provided the Committee with feedback from primary dealers in response to the
recent quarterly refunding agenda discussion topics. Primary dealers generally responded that
foreign demand has remained robust, as the Treasury market is the deepest and most liquid in
the world. Foreign o icial demand is expected to remain steady in the year ahead, while foreign
private demand will continue to fluctuate with various factors, including investment mandates,
cross-border funding costs, and exchange rate expectations.
Pietrangeli then provided the Committee with feedback from the primary dealers on the
Treasury Inflation-Protected Securities (TIPS) program. In particular, primary dealers indicated
expectations for strong demand moving forward and that an increase in current TIPS issuance
sizes would be well received, particularly at the 5-year tenor. Many primary dealers were also
supportive of the potential for a new 5-year TIPS issuance in the second half of the year.
Pietrangeli noted that Treasury was pleased by the positive feedback on the current issuance
calendar and will continue to study the potential introduction of a new 5-year TIPS, as well as

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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

other potential adjustments to the TIPS program to support liquidity and meet investor
demand.
The Committee then turned to a discussion around financing for the upcoming quarter. The
Committee agreed that a recommended financing plan should take into account several
portfolio metrics. In particular, the TBAC’s debt optimization model suggests Treasury would
benefit by focusing new issuance in the belly of the curve, defined by the model as the 2- to 5year nominal coupon tenors.
The Committee adjourned at 12:30 p.m. for lunch.
The Committee reconvened at 1:30 p.m., with Committee members providing an update on the
development of the debt issuance optimization model, indicating that TIPS may soon be
incorporated into the optimization.
The Committee then proceeded to finalize its issuance recommendations for the upcoming
quarter. Given current estimates for funding needs over the medium-term, as well as the
benefits of issuing proportionally more in the belly of the yield curve, the Committee
recommended that Treasury increase 2-, 3-, and 5-year nominal coupon auction sizes
proportionally more than the 7-, 10-, and 30-year nominal coupon securities during the
remainder of the May-July period.
The Committee adjourned at 2:30 p.m.

_____________________________
Laura Lipscomb
Deputy Assistant Secretary for Federal Finance
United States Department of the Treasury
May 1, 2018

Certified by:
_________________________________
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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May …

Jason Cummins, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2018
_________________________________
Stuart Spodek, Vice Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2018

TREASURY BORROWING ADVISORY COMMITTEE
QUARTERLY MEETING
COMMITTEE CHARGE – MAY 1, 2018
FISCAL OUTLOOK
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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 to Treasury’s
coupon auctions do you recommend at this time, if any?

ASSESSMENT OF POTENTIAL 2-MONTH BILL ISSUANCE
AND POSSIBLE ALTERNATIVE SETTLEMENT CYCLE
We would like the Committee to comment on potential demand for a 2-month bill tenor, as well
as the e ect a 2-month bill would have on pricing and liquidity of other T-bill tenors. Please also
comment on the potential advantages and disadvantages to having some Treasury bill tenors
settle and mature outside of the typical Thursday-to-Thursday cycle.

FINANCING THIS QUARTER
We would like the Committee’s advice on the following:
The composition of Treasury notes and bonds to refund approximately $39.1 billion of
privately-held notes maturing on May 15, 2018.
The composition of Treasury marketable financing for the remainder of the April-June 2018
quarter, including cash management bills.
The composition of Treasury marketable financing for the July-September 2018 quarter,
including cash management bills.

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