Presentation to the Treasury Borrowing Advisory Committee U.S. Department of Treasury Office of Debt Management May 3, 2011 U NITED S TATES D EPARTMENT OF THE T REASURY
Agenda • Fiscal Developments – Tax Update – MBS Portfolio – Non-Marketable Treasury Security Update – Deficit Forecasts – Debt Limit • Auction Demand & Market Trends – Coverage Ratios – Investor Class Data • Portfolio Metrics – Nominal Coupons and Bills – Treasury Supplementary Financing Program – TIPS – Average Maturity – Percentage of Debt Maturing in Upcoming Years • Long-term Challenges – Office of Management and Budget (OMB) Forecasts – Deficit Reduction Plans 2 U NITED S TATES D EPARTMENT OF THE T REASURY
FISCAL DEVELOPMENTS 3 U NITED S TATES D EPARTMENT OF THE T REASURY
Growth in Individual Tax Receipts Continued in Q2 FY 2011 Q Quarterly Tax Receipts Year-over-Year Percentage Change 60% A closer look at Q2 FY11 ending March-2011: Withheld Taxes: +3% Nonwithheld Taxes: +5% Corporate Taxes: -31% 40% 20% 0% -20% -40% Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar- 11 Withheld Taxes Nonwithheld Taxes Corporate Taxes Note: Adjusted for 9/11/01 Corporate Tax Receipts disruption Note: Data plotted is year-over-year changes in quarterly receipts Source: Monthly Treasury Statement 4 U NITED S TATES D EPARTMENT OF THE T REASURY
April Tax Receipts Show Strength 5-Year Average Receipt Composition FY2006-2010 Receipt Category Avg. % of Annual Receipts Withheld 69% Corporate 14% Nonwithheld 17% A Closer Look at April 2011 Receipt Category Composition Y/Y % Change Y/Y Change $Billions Withheld 42% 1% $2 Corporate 9% -6% -$2 Nonwithheld 49% 29% $37 5 U NITED S TATES D EPARTMENT OF THE T REASURY
Treasury Sales of MBS Will Reduce Borrowing Needs Proceeds from Sales Principal and Total Taxpayer Agency-Guaranteed MBS Portfolio by Treasury Interest Payments Recoveries 0 $100.8 billion $100.8 billion Cumulative through February 2011 $3.8 billion $3.2 billion $7.0 billion March 2011 $10.3 billion $2.8 billion $13.1 billion April 2011 $14.1 billion $106.8 billion $120.9 billion Cumulative through April 2011 FNMA Current Coupon 30yr TSY OAS 50 40 30 20 3/21/11 US 10 Treasury 2/11/11 GSE White Announces 0 Paper Released MBS Portfolio -10 Disposition -20 10-May-2010 24-May-2010 7-Jun-2010 21-Jun-2010 5-Jul-2010 19-Jul-2010 2-Aug-2010 16-Aug-2010 30-Aug-2010 13-Sep-2010 27-Sep-2010 11-Oct-2010 25-Oct-2010 8-Nov-2010 22-Nov-2010 6-Dec-2010 20-Dec-2010 3-Jan-2011 17-Jan-2011 31-Jan-2011 14-Feb-2011 28-Feb-2011 14-Mar-2011 28-Mar-2011 11-Apr-2011 Tsy OAS Source: JP Morgan 6 U NITED S TATES D EPARTMENT OF THE T REASURY
Treasury’s Current MBS Holdings Treasury Holdings of FNMA & FRE 30-Year As a % of Outstanding Float (ex-CMO) 15% FRE $18.35B 10% FRE $24.29B FRE $8.27B FNMA $18.84B FNMA $16.35B FNMA $7.91B 5% FNMA $15.70B FRE $4.16B FRE $1.88B FNMA $1.36B FNMA $0.05B FRE $0.00B 0% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% Coupon UST % of Total (FNMA) UST % of Total (FRE) Note: Data through 4/29/2011 MBS Outstanding Float Source: JP Morgan 7 U NITED S TATES D EPARTMENT OF THE T REASURY
Non-Marketable Redemptions Continued in Q2 FY 2011 Net Non-marketable Issuance In Billions $ $30 $20 $10 $0 -$10 -$20 -$30 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 Savings Bond Foreign Series SLGS Source: Monthly Treasury Statement 8 U NITED S TATES D EPARTMENT OF THE T REASURY
Primary Dealer and Government Deficit Estimates FY 2011-2013 Deficit and Borrowing Estimates In Billions $ Primary Dealers* CBO OMB FY 2011 Deficit Estimate 1,431 1,480 1,645 FY 2012 Deficit Estimate 1,149 1,100 1,101 FY 2013 Deficit Estimate 920 704 768 FY 2011 Deficit Range 1,300-1,682 FY 2012 Deficit Range 1,025-1,300 FY 2013 Deficit Range 700-1,100 FY 2011 Marketable Borrowing Range 1,124-1,550 FY 2012 Marketable Borrowing Range 1,000-1,350 Estimates as of: Apr 2011 Jan 2011 Feb 2011 *Based on Primary Dealer feedback on April 29, 2011. Deficit estimates are averages. 9 U NITED S TATES D EPARTMENT OF THE T REASURY
Treasury Expects to Reach the Debt Limit on May 16 Total Public Debt Outstanding Subject to the Statutory Debt Limit Debt Subject to Limit Debt Limit 16 Current Debt Ceiling: $14.294 Trillion Current Debt: $14.230 Trillion Headroom: $64 Billion 14 12 10 8 6 4 1997 - Feb 1998 - Feb 1999 - Feb 2000 - Feb 2001 - Feb 2002 - Feb 2003 - Feb 2004 - Feb 2005 - Feb 2006 - Feb 2007 - Feb 2008 - Feb 2009 - Feb 2010 - Feb 2011 - Feb 1997 - Aug 1998 - Aug 1999 - Aug 2000 - Aug 2001 - Aug 2002 - Aug 2003 - Aug 2004 - Aug 2005 - Aug 2006 - Aug 2007 - Aug 2008 - Aug 2009 - Aug 2010 - Aug Note: Data through 4/28/2011 10 U NITED S TATES D EPARTMENT OF THE T REASURY
Extraordinary Actions Used in the Past Do Not Provide as Much Flexibility There have been 6 occasions over the past 15 years Fiscal Year 1996 where Treasury has been forced to use extraordinary actions to continue to fund government # of Days of Debt Limit Impasse 136 operations. Tools G-Fund, CSRDF, ESF, FFB, SLGS Some combination of the following actions have Fiscal Year 2002 been used during these episodes: # of Days of Debt Limit Impasse 85 Tools G-Fund, CSRDF, SLGS • Suspension of issuance of new State and Local Government Securities (SLGS) Fiscal Year 2003 • Suspension of investments in: # of Days of Debt Limit Impasse 93 o the Government Securities Investment Tools G-Fund, CSRDF, ESF, FFB, SLGS Fund (G-Fund) o the Exchange Stabilization Fund (ESF) Fiscal Year 2005 o the Civil Service Retirement and Disability # of Days of Debt Limit Impasse 37 Fund (CSRDF)* Tools G-Fund, CSRDF, ESF, FFB, SLGS • Federal Financing Bank (FFB) swap transactions Fiscal Year 2006 These periods lasted between 29 and 136 days. In # of Days of Debt Limit Impasse 29 each of these cases, the extraordinary actions Tools G-Fund, CSRDF, ESF, FFB, SLGS undertaken by Treasury were sufficient to continue funding the government. Fiscal Year 2011 However, given financing needs, these tools will not # of Days of Debt Limit Impasse ??? sustain borrowing beyond early August. Tools G-Fund, CSRDF, ESF, SLGS *Also includes the redemption of existing investments 11 U NITED S TATES D EPARTMENT OF THE T REASURY
AUCTION DEMAND & MARKET TRENDS 12 U NITED S TATES D EPARTMENT OF THE T REASURY
Coverage Ratios Have Remained Strong in FY 2011 Weighted Average Coverage Ratio on Nominal Notes and Bonds In Billions $, Coverage Ratio $2,500 3.5 $2,000 3.0 $1,500 2.5 $1,000 2.0 $500 1.5 $0 1.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011YTD Gross Private Issuance Weighted Average Coverage Ratio Source: Treasury Auction Data; Through 4/25/2011 13 U NITED S TATES D EPARTMENT OF THE T REASURY
Smaller Dealers Have Increased Nominal Coupon Auction Participation FY2011 YTD: Average Investor Class Allotments Five-Year Average of Investor Class Allotments* Depository SOMA 3% Institutions 1% Individuals 1% SOMA 9% Foreign & Foreign & International International 19% 22% Investment Funds 14% Primary Dealers 47% Investment Primary Dealers Funds 17% 52% Other Other Dealers & Dealers & Brokers 4% Brokers 10% *FY2006 through FY2010 Source: Treasury Investor Class Data; Data through 4/15/2011 14 U NITED S TATES D EPARTMENT OF THE T REASURY
Smaller Dealers Have Also Increased Bill Auction Participation FY2011 YTD: Average Investor Class Allotments Five-Year Average of Investor Class Allotments* Foreign & Individuals 2% SOMA 3% International Other 1% 10% Foreign & SOMA 12% International Individuals 4% 13% Investment Investment Funds 13% Funds 14% Other Dealers & Brokers 7% Other Dealers & Primary Dealers Brokers 12% 55% Primary Dealers 54% *FY2006 through FY2010 Source: Treasury Investor Class Data; Data through 4/15/2011 15 U NITED S TATES D EPARTMENT OF THE T REASURY
PORTFOLIO METRICS 16 U NITED S TATES D EPARTMENT OF THE T REASURY
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