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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 Octo…

Minutes of the Meeting of the Treasury Borrowing Advisory
Committee of the Securities Industry and Financial Markets
Association October 31
November 1, 2017

The Committee convened in a closed session at the Hay Adams Hotel at 9:30 a.m. All members,
with the exception of Daniel Dufresne, were present. Counselor to the Secretary Craig Phillips,
Acting Assistant Secretary for Financial Markets Monique Rollins, Director of the O ice of Debt
Management Fred Pietrangeli, and Deputy Director of the O ice of Debt Management John
Dolan welcomed the Committee. Other members of Treasury sta present were Clay Berry,
Chris Cameron, Dave Chung, Tom Dickason, Whitney Goss, Kevin Hawkins, Tom Katzenbach,
Matthew Kellogg, Amyn Moolji, Ken Phelan, Renee Tang, and Brandon Taylor. Federal Reserve
Bank of New York sta members Frank Keane, Matthew Raskin, Nick Steele, and Nathaniel
Wuer el were also present, as was Laura Lipscomb of the Federal Reserve Board of Governors.
Counselor Phillips began by discussing personnel changes at Treasury, including that Acting
Assistant Secretary Rollins would be leaving the Treasury in the coming weeks and thanked her
for her government service. Phillips announced that Clay Berry, currently the Deputy Assistant
Secretary for Europe and Eurasia, would be taking over Rollins' duties as Acting Assistant
Secretary for Financial Markets.
The Committee began with a presentation on sizing considerations for Treasury bills given the
context of an increase in projected borrowing needs. The presenting member began by
reiterating prior observations that bills as a share of marketable debt remain at historically low
levels, though on a percent of GDP basis they are slightly above the long-run average. However,
regulatory changes may suggest there is capacity for bills as a percent of GDP to increase above
the long-run average. In addition, while demand for bills from foreign o icial accounts and
money market funds is significant, the allocation toward bills within those investor classes is
still relatively small. Furthermore, when compared to imperfect bill substitutes or fixed income
securities more broadly, bills outstanding have increased at a slower pace.
Regarding supply changes, the presenting member noted a sizable financing need over the next
ten years as a result of SOMA redemptions and primary dealer estimates for widening deficits.
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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association Octo…

Several scenarios for increased bill issuance were presented, highlighting the e ects on bills as a
percentage of marketable debt and the overall weighted average maturity (WAM). The
applicable changes to auction sizes that would be necessary were also discussed within the
context of recent primary dealer estimates for the maximum o ering sizes that would not have a
meaningful e ect on fair value. Given various scenarios to address the financing gap, the
Committee generally agreed that allocating between one-quarter and one-third of new issuance
to bills would be appropriate given the size of funding needs and the demand for bills. However,
the presenting members concluded that allocating more than one-third of the financing gap to
bills might bring bill auction sizes above desired levels and shorten the WAM.
Next, the Committee turned to a presentation on debt issuance optimization models as an
update to an earlier presentation from the January 2017 meeting. It was again emphasized that
the modeling results do not constitute a specific recommendation but rather provide an
approach to analyze cost and risk trade-o s under various assumptions. Given the objective of
funding at the lowest risk-adjusted cost over time, the presenting member summarized various
strategies, including: focusing issuance on bills, the belly of the curve, or the long-end. In
general, the optimal strategy depends on the preferred measure of risk, as well as the
projections for deficits, short rates, and term premia assumed in the model. However, the model
generally suggests that a skew towards increased issuance in the 2-, 3-, and 5-year sector is
attractive. The model also suggests that the marginal benefit in risk and cost reduction of
further increasing WAM has diminished compared to the attractiveness of increasing WAM a er
the financial crisis. As the model is still in development, the Committee discussed using it to test
di erent economic assumptions and stated its interest in incorporating Treasury InflationProtected Securities (TIPS) into the model at a future date.
Taking both presentations into account, the Committee discussed potential issuance strategies
going forward, and agreed that changes in coupon sizes should be announced at the February
2018 refunding in order to address the upcoming financing gap. Given the current fiscal
outlook, the Committee agreed that Treasury should focus on increasing issuance in bills and
the 2-, 3-, and 5-year sectors, while maintaining issuance at the long-end such that the WAM
does not materially change from current levels. However, the Committee noted that WAM is an
outcome of the issuance strategy and not a goal in itself, though it remains a useful way to
assess the results of issuance changes.
The Committee adjourned at 12:00 p.m. for lunch.

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

The Committee reconvened at 1:30 p.m. and Director Pietrangeli began with an overview of the
fiscal situation. Pietrangeli noted that for FY 2017, tax receipts increased by one percent while
outlays increased by three percent. In addition, net issuance of State and Local Government
Securities (SLGS) was negative over the past quarter as a result of the closed window during the
debt limit impasse. Finally, Pietrangeli noted that net marketable borrowing amounts were just
announced at $275 billion for the current quarter and $512 billion for the upcoming quarter.
Nevertheless, the fiscal outlook going forward is uncertain as seen by the wide range of
estimates for both deficits and the marketable borrowing needs.
Turning to auction demand, Pietrangeli pointed to bid-to-cover ratios for bills, which remain
above pre-crisis levels. For 2-, 3-, and 5-year securities, bid-to-cover ratios remain stable or are
increasing, while they are generally flat for longer-dated securities.
Pietrangeli then provided presentations focused on the FRN and TIPS programs. Based on
analysis of matured FRNs, these securities have provided a savings in interest expense of
approximately $1.3 billion compared to the 2-year fixed-rate note. In general, matured FRNs
have been less costly to issue than the 2-year note, more expensive than the 3-month and 6month bills, and about the same as the 1-year bill. In addition, investor class auction allotment
data indicates that the investor base for Treasury securities has broadened with the
introduction of the FRN.
Shi ing to TIPS, Pietrangeli provided a brief overview of the program and noted that Treasury
has benefited from the diversification of risk that result from issuing a security that does not
require the payment of an inflation risk premium. As a result of lower-than-expected inflation,
when compared to equivalent nominal securities, analysis showed that TIPS have saved the
Treasury approximately $49 billion since inception.
The Committee briefly discussed the TIPS program and agreed that further study regarding the
program overall and potential changes to sizing would be appropriate at their next meeting.
The Committee adjourned at 2:15 p.m.
The Committee reconvened at 3:45 p.m. All Committee members, with the exception of Daniel
Dufresne and Christine Hurtsellers, were present. The Chair presented the Committee report to
Secretary Mnuchin.
A brief discussion followed the Chair’s presentation, but did not raise significant questions
regarding the report’s content.

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

The Committee then reviewed the financing for the remainder of the October through
December quarter and the January through March quarter (see attached).
The meeting adjourned at 4:30 p.m.

_____________________________

Fred Pietrangeli
Director of the O ice of Debt Management
United States Department of the Treasury
October 31, 2017

Certified by:

_________________________________

Jason Cummins, Chairman
Treasury Borrowing Advisory Committee

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

Of The Securities Industry and Financial Markets Association
October 31, 2017

_________________________________

Stuart Spodek, Vice Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
October 31, 2017

Treasury Borrowing Advisory Committee Quarterly
Meeting
Committee Charge – October 31, 2017
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
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Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association Octo…

changes to Treasury’s coupon auctions do you recommend at this time, if any?
Issuance Modeling
The primary objective of Treasury’s debt management strategy is to finance the government’s
borrowing needs at the lowest risk-adjusted cost over time. To accomplish this, Treasury strives
to issue debt in a regular and predictable pattern, but that approach leaves open a wide range of
potential outcomes for the maturity structure of the debt. The interest expense associated with
any issuance strategy will depend on a variety of factors that are not under the control of the
debt manager, including the behavior of interest rates, the business cycle, and the federal
government’s fiscal policy.
Pursuant to the TBAC charge and discussion at the January 2017 meeting, please provide an
update on e orts the Committee is making with regard to the development of issuance models.
Please comment on any revisions to or extensions of the modeling work that was presented in
January. Provide an analysis of results from these models and how aspects of these models can
complement or be incorporated with ODM’s existing issuance model framework. Comment on
the degree to which the updated modeling e orts can help to inform potential increases to
nominal coupon auction issuance.
Optimizing the Amount of Treasury Bills Outstanding
Treasury would like the Committee to comment on sizing considerations related to the issuance
of Treasury bills over the short-, medium-, and long-term. What factors should Treasury
consider when optimizing the size of bills outstanding over the coming years? Specifically,
comment on expected drivers of demand, the investor base, auction sizing, and market pricing
relative to other short-term money market instruments.
Financing this Quarter
We would like the Committee’s advice on the following:
The composition of Treasury notes and bonds to refund approximately $42.7 billion of
privately-held notes maturing on November 15, 2017.
The composition of Treasury marketable financing for the remainder of the OctoberDecember 2017 quarter, including cash management bills.
The composition of Treasury marketable financing for the January-March 2018 quarter,
including cash management bills.

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

TBAC Recommended Financing Table Q4 2017

and TBAC Recommended Financing Table Q1

2018

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