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5/5/2020 Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association July 3… U.S. DEPARTMENT OF THE TREASURY Press Center Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association July 30th, 2013 7/31/2013 The Commi ee convened in closed session at the Hay Adams Hotel at 9:00 a.m. All members were present, except Ma Zames. Under Secretary for Domes c Finance Mary Miller, Assistant Secretary for Financial Markets Ma hew S. Rutherford, Deputy Assistant Secretary for Federal Finance James G. Clark, and Director of the Office of Debt Management Fred Pietrangeli welcomed the Commi ee. Other members of Treasury staff present were Deputy Director Amar Regan , Deputy Director Allen Zhang, John Dolan, David Chung, Jamie Franco, Tom Katzenbach, and Sundar Swaminathan. Federal Reserve Bank of New York staff member Josh Frost was also present. Deputy Assistant Secretary (DAS) Clark began by discussing recent trends in receipts. Clark noted that individual non-withheld tax receipts con nued to have a strong year-on-year performance, rising 34 percent over the comparable quarter last year, one of the strongest results since 2006. Similarly, withheld taxes con nued to post strong gains, rising 10.6 percent, one of the fastest year-over-year gains in the last decade. Clark noted that much of the change was due to the large increase in April’s receipts, which may par ally be a ributed to income shi ing by taxpayers ahead of an cipated increases to tax rates at the beginning of 2013. Clark then showed a chart with the eleven largest outlays in the fiscal year to date. The decline in Treasury outlays was a ributed in part to a one- me payment of $51 billion by Fannie Mae. Further declines in Treasury outlays were driven by a $30 billion decrease in interest on debt and a $12 billion downward subsidy re-es mate for TARP programs. For the HHS category, Clark noted that outlays were $14 billion, or 2 percent, higher when compared to the same period last year. The increase was due to the normal growth in Medicare. SSA outlays were $32 billion, or 5 percent, higher compared to the first three quarters of last year. Clark also noted that net issuance of State and Local Government Series (SLGS) securi es was lower during the most recent quarter as the SLGS window had been closed since May of this year as part of extraordinary measures. Clark then reviewed budget deficit data, illustra ng that the lower cumula ve budget deficit in June rela ve to the prior month was primarily due to the large payment by Fannie Mae to Treasury. On the next slide, he noted that the primary dealer net marketable borrowing es mates were $28 billion higher than the CBO, and $197 billion lower than OMB’s FY 2014 es mate. He noted that net marketable borrowing was greater than the deficit, reflec ng funding required for federal direct lending programs, such as student loans. A er DAS Clark completed his overview, Director Pietrangeli began by briefly reviewing sources of financing in Q3 and Q4 of FY 2013. He noted that the April-to-June quarter is typically characterized by a seasonal reduc on in borrowing needs, by virtue of the fact that April tax payments are during that me. Treasury typically addresses seasonal changes in borrowing needs with corresponding changes to bill financing. In reac on to the sizable increase in April payments, Treasury reduced net bill issuance by $221 billion while keeping coupon issuance steady; $210 billion was raised in coupons. Pietrangeli noted that the level of bills outstanding at the end of June was $1.57 trillion, approximately $80 billion below the average level of bills outstanding over the last 4 years. He called a en on to the projected implied decrease in financing for Q4 FY 2013 of $18 billion. He noted that these projec ons assumed the debt issuance pa ern that was in effect at the end of June 2013, which incorporated a very low level of bill issuance. Pietrangeli then reviewed the component forecast of Treasury’s borrowing needs. He noted that the chart showed borrowing needs related to the primary deficit, net interest payments, and direct lending programs. He noted that going forward, the largest component of borrowing needs would be for interest payments. Pietrangeli next reviewed Treasury’s projected borrowing capacity rela ve to the projected net marketable borrowing forecast provided in the Mid-Session Review (MSR) and CBO’s es mate of the President’s Budget. Pietrangeli noted that there was some divergence between the CBO es mate and the MSR and that recent es mates from primary dealers were closer in magnitude to the CBO forecast. He also added that Treasury’s es mate for borrowing capacity did not incorporate any es mates for FRN issuance. Next, Pietrangeli reviewed several debt metrics. As of June 28, 2013, the weighted average maturity (WAM) of the por olio was approximately 66 months. In the chart showing the projec ons for Treasury’s WAM, Pietrangeli had adjusted future note and bond issuance on a pro-rata basis to match projected financing needs. The simula on showed that the WAM con nued to extend well above the three decade average of 58.1 months. By 2016, the WAM could reach the upper end of the historical range. He emphasized that the average maturity projec ons and the associated underlying assump ons for future issuance were hypothe cal 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. Pietrangeli then quickly reviewed the demand characteris cs within the primary market for Treasury securi es over Q3 FY 2013. Pietrangeli noted that bid-to-cover ra os remained high rela ve to historical levels across all securi es, though there had been a decline in all non-bill categories. He also noted that while several categories of investors had exhibited more restrained demand during this period, investment funds in par cular had increased their par cipa on in longer-dated coupon securi es. Pietrangeli concluded by drawing a en on to a data issue when reviewing the Total Foreign Awards chart. He noted that several securi es that were auc oned in June did not se le un l July, and therefore were not reflected in the current chart. He noted that on slides 38 and 39, foreign demand has been very stable over the last two years. DAS Clark then presented Treasury’s finalized term sheet for the Floa ng Rate Note (FRN). He stated that the first auc on would likely take place at the end of January and that interested par es could find the final term sheet and the final rule related to the FRN on the Treasury Direct website. Clark noted that changes to the final term sheet were minor rela ve to last quarter’s indica ve term sheet. Next, the Commi ee turned to the ques on of whether Treasury’s issuance schedule remained appropriate given required financing needs. A TBAC presenter reviewed several guiding principles for Treasury’s debt issuance strategy, underscoring the no on that Treasury should con nue to extend the weighted-average maturity of the por olio. The presenter then noted that due to a reduc on in near-term funding needs, it appeared that Treasury could consider reducing coupon issuance. A member noted there was some uncertainty over medium-term funding requirements and that a reduc on in coupon issuance should therefore be rela vely modest. Another member noted that cu ng shorter-dated coupons would enhance Treasury’s goal of increasing the WAM of the por olio, while maintaining the integrity the bills market. A member also observed that the introduc on of FRNs in January would further support the stability and func oning of the market for short dura on, high quality securi es. https://www.treasury.gov/press-center/press-releases/Pages/jl2128.aspx 1/3 5/5/2020 Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association July 3… A discussion ensued among the Commi ee members. The Commi ee then recommended that Treasury moderately reduce its 2-year and 3-year coupon issuance while con nuing to monitor fiscal developments. The Commi ee then discussed whether the TBAC should foster greater engagement with the academic community in order to undertake longer-term analy cal projects. It was decided that the Commi ee would examine a proposal the next quarterly mee ng. The Commi ee then turned its a en on to the charge dealing with liquidity condi ons in fixed income markets. The presen ng member denoted the four dimensions of liquidity: ghtness between bid and offer, depth of absorbable transac on size, speed, and resiliency. The member noted that issues in liquidity were mainly reflected in the secondary, not primary, fixed income markets. The member then noted that while the level of turnover had increased, it had not kept pace with the outstanding stock of securi es. The presen ng member con nued to review trends in fixed income liquidity, the poten al impact of new regula ons, and the effects of policy and market structure. A discussion then followed on current market liquidity condi ons. The Commi ee then turned its a en on to the charge dealing with debt management tools of other sovereigns. The commi ee concluded that Treasury’s current suite of tools were appropriate. While new techniques may not provide significant benefits to Treasury at the current me, a member noted that they could become relevant at some future date. The mee ng adjourned at 11:30 a.m. The Commi ee reconvened at the Department of the Treasury at 5:00 p.m. All Commi ee members, excluding Ma Zames were present. The Chairman presented the Commi ee report to Secretary Lew. A brief discussion followed the Chairman's presenta on but did not raise significant ques ons regarding the report's content. The Commi ee then reviewed the financing for the remainder of the July through September quarter and the October through December quarter (see a ached). The mee ng adjourned at 6:00 p.m. _________________________________ James G. Clark Deputy Assistant Secretary for Federal Finance United States Department of the Treasury July 30, 2013 Cer fied by: ___________________________________ Dana Emery, Chairman Treasury Borrowing Advisory Commi ee Of The Securi es Industry and Financial Markets Associa on July 30, 2013 ___________________________________ Cur s Arledge, Vice Chairman Treasury Borrowing Advisory Commi ee Of The Securi es Industry and Financial Markets Associa on July 30, 2013 Treasury Borrowing Advisory Commi ee Quarterly Mee ng Commi ee Charge – July 30, 2013 Fiscal Outlook Taking into considera on Treasury’s short, intermediate, and long-term financing requirements, as well as uncertain es about the economy and revenue outlook for the next few quarters, what changes to Treasury’s coupon auc ons do you recommend at this me, if any? Liquidity in Fixed Income Markets Since the 2008 financial crisis, there have been a number of developments in financial markets, such as new regula ons, changes in market structure, and technological advancements. To varying degrees, these developments have had an impact on the landscape and structure of the global financial marketplace. We would like the Commi ee to comment on the extent to which these changes could impact liquidity in fixed-income markets. https://www.treasury.gov/press-center/press-releases/Pages/jl2128.aspx 2/3 5/5/2020 Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association July 3… What is the outlook for fixed-income liquidity over the longer-term? Survey of Debt Management Tools and Techniques Treasury con nually seeks ways to minimize borrowing costs, be er manage its liability profile, enhance market liquidity, and expand the investor base in Treasury securi es. In light of these objec ves, we would like the Commi ee to comment on the need, if any, for Treasury to implement other types of debt management tools. In answering the ques on, please review the tools employed by debt management authori es around the world. Financing this Quarter We would like the Commi ee’s advice on the following: The composi on of Treasury notes and bonds to refund approximately $69.6 billion of privately-held notes maturing on August 15th, 2013 The composi on of Treasury marketable financing for the remainder of the July-September quarter, including cash management bills. The composi on of Treasury marketable financing for the October - December quarter, including cash management bills. TBAC Recommended Financing Table Q3 2013 and TBAC Recommended Financing Table Q4 2013 https://www.treasury.gov/press-center/press-releases/Pages/jl2128.aspx 3/3
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