Professional Documents
Culture Documents
Table of Contents
I. Fiscal
A. B. C. D. E. F. G. Quarterly Tax Receipts Monthly Receipt Levels Ten Largest Outlays Treasury Net Nonmarketable Borrowing Cumulative Budget Deficits Deficit and Borrowing Estimates Budget Surplus/Deficit p. p. p. p. p. p. p. 4 5 6 7 8 9 10
II. Financing
A. B. C. D. Sources of Financing OMBs Projections of Borrowing from the Public Interest Rate Assumptions Net Marketable Borrowing on Auto Pilot Versus Deficit Forecasts p. p. p. p. 12 14 15 16
IV. Demand
A. B. C. D. E. Summary Statistics Bid-to-Cover Ratios Investor Class Auction Awards Foreign Awards at Auction Primary Dealer Awards at Auction p. p. p. p. p. 25 26 30 37 41
Section I: Fiscal
Sept. 2002 year over year % change data point excluded from corporate taxes due to 9-11 impacts on data.
Withheld Taxes (incl FICA)
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 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
100
80
$ bn
60
40
20
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 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
Individual Income Taxes Corporation Income Taxes Social Insurance Taxes Other
Individual Income Taxes include withheld and non-withheld. Social Insurance Taxes include FICA, SECA, RRTA, UTF deposits, FUTA and RUIA. Other includes excise taxes, estate and gift taxes, customs duties and miscellaneous receipts.
Foreign Series
Fiscal Quarter
Q4-02 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13
1,400
1,200
1,000
800 $ bn 600 400 200 0 March November September December February May June July January October August April
FY2013
FY2011
FY2012
FY 2013 Net Marketable Borrowing Estimate FY 2014 Net Marketable Borrowing Estimate FY 2015 Net Marketable Borrowing Estimate FY 2013 Net Marketable Borrowing Range FY 2014 Net Marketable Borrowing Range FY 2015 Net Marketable Borrowing Range Estimates as of:
1Based 2Table
Jul-12
on primary dealer feedback on January 28, 2013. Estimates above are averages. 1 from "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022" and changes S-5 and S-14 of the "Fiscal Year 2013 Mid-Session Review Budget of the US Government"
Budget Surplus/Deficit
500 2%
0%
(2,000)
10%
(2,500) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Fiscal Year Surplus/Deficit in $ bn-(L) OMBs Projection Projections are from Table S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. Surplus/Deficit as a % of GDP-(R) 2022
12%
10
11
October-December 2012 Coupon Issuance Gross 140 96 140 116 66 42 14 13 7 634 2,099 Maturing 146 124 63 0 18 0 0 0 0 352 1,804 Net (6) (28) 77 116 48 42 14 13 7 282 295
Fiscal Year to Date Gross 140 96 140 116 66 42 14 13 7 634 2,099 Maturing 146 124 63 0 18 0 0 0 0 352 1,804 Net (6) (28) 77 116 48 42 14 13 7 282 295
12
Sources of Financing in Fiscal Year 2013 Q2 Assuming Constant Issuance Sizes as of 12/31/2012
January-March 2013 Net Required Funding for FY 2013 Q2 394 Met with: Beginning Cash Balance Treasury Annouced Estimate: Ending Cash Balance* Subtotal: Funding from Drawdown of Cash 93 30 63
Issuance 4-Week 13-Week 26-Week 52-Week CMBs Bill Subtotal January-March 2013 Bill Issuance Gross 520 416 364 75 0 1,375 Maturing 520 416 360 77 0 1,373 Net (0) 0 4 (2) 0 2 Gross 1,025 832 728 150 105 2,840 Maturing 1,025 824 719 152 105 2,825 Net (0) 8 9 (2) 0 15 Fiscal Year to Date
Assuming Constant Issuance Sizes as of 12/31/2012**: Net Bill Issuance 2 Net Coupon Issuance 187 Subtotal: Net Marketable Borrowing 189 Treasury Announced Estimate: Net Marketable Borrowing* 331 Implied: Increase In FY 2013 Q2 Net Issuances 142
January-March 2013 Coupon Issuance Issue 2-Year 3-Year 5-Year 7-Year 10-Year 30-Year Gross 70 96 70 58 66 42 0 28 9 439 1,814 Maturing 73 127 33 0 19 0 0 0 0 252 1,625 Net (3) (31) 37 58 47 42 0 28 9 187 189
Fiscal Year to Date Gross 210 192 210 174 132 84 14 41 16 1,073 3,913 Maturing 219 251 96 0 38 0 0 0 0 604 3,429 Net (9) (59) 114 174 94 84 14 41 16 469 484
*Financing Estimates released by the Treasury can be found via the following url: http://www.treasury.gov/resource-center/data-chartcenter/quarterly-refunding/Pages/Latest.aspx **Keeping issuance sizes, as of 12/31/2012, constant for all Bills securities while maintaining the same issuance size and pattern for all Nominal Coupon and TIPS securities.
13
1,000 803
FY2013 2022CumulativeTotal $bn % PrimaryDeficit 1,160 15% Interest 5,284 69% Other 1,212 16% Total 7,656
Data Labels: Annual Change in Debt Held by the Public 749 736 696 657 684 699 752 723
800
$ bn
600
400
200
(200) 2013 2014 2015 2016 2017 2018 2019 2020 2021 Fiscal Year PrimaryDeficit Interest Other DataLabels:AnnualChangein DebtHeldbyPublic 2022
OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. Data labels represent the change in debt held by the public in $ billions. Other represents borrowing from the public to provide direct and guaranteed loans, in addition to TARP activity. Data labels represent the annual change in debt held by the public.
14
Fiscal Year Implied 10-Year Forward Treasury Rates as of 12/31/2012 OMB as of June 2012
OMBs economic assumption of the 10-Year Treasury rate is from Table 2 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The implied 10-Year forward Treasury rates are the average of the four quarter-ends for each fiscal year.
15
2,000
Historical Net Marketable Borrowing and Projected Net Borrowing Assuming Future Issuance Remains Constant
1,500
1,000 $ bn 500 0
(500)
783 2008
1,786 2009
1,482 2010
1,104 2011
1,114 2012
929 2013
748 2014
629 2015
660 2016
498 2017
632 2018
552 2019
371 2020
295 2021
283 2022
End of Fiscal Year Bills 2/3/5 7/10/30 TIPS HistoricalNetMarketable Borrowing/ProjectedNetBorrowing (datalabelsatbottom) OMBsProjectionsof BorrowingfromthePublic
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. Assumes issuance sizes for Bills, Nominal Coupons and TIPS are unchanged from 12/31/2012 levels, along with SOMA reinvestment. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. No attempt was made to match future financing needs. OMBs projections of borrowing from the public projections are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. Data labels represent historical net marketable borrowing and projected net borrowing assuming future issuance remains constant at current sizes. See table on the following page for details.
16
Historical Net Marketable Borrowing and Projected Net Borrowing* Assuming Future Issuance Remains Constant, $ Billion
Historical Net Marketable Borrowing/Projected Net Borrowing Capacity
Bills
2/3/5
7/10/30
TIPS
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
106 732 869 576 148 90 (5) (92) 91 101 160 170 63 9 3
105 512 782 751 737 720 672 641 498 327 391 304 266 274 283
40 38 35 88 90 107 81 80 71 70 81 78 43 13 (3)
783 1,786 1,482 1,104 1,114 929 748 629 660 498 632 552 371 295 283
1,158 803 736 749 696 657 684 699 723 752
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. Assumes issuance sizes for Bills, Nominal Coupons and TIPS are unchanged from 12/31/2012 levels, along with SOMA reinvestment. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. No attempt was made to match future financing needs. OMBs projections of borrowing from the public projections are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. * Details for Fiscal Year 2013 is in the Appendix.
17
18
64.8 months on 12/31/2012 58.1 months (Historical Average from 1980 to 2010)
Calendar Year Historical Adjust Nominal Coupons to Match Financing Needs Historical Average from 1980 to 2010
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.
19
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on the following page for details. Maturity distribution by original issuance type and term can be found in the appendix (slide 45).
20
End of Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
< 1yr 1,581 2,152 2,702 2,563 2,620 2,889 3,039 3,154 3,204 3,406 3,533 3,713 3,715 3,880 4,041 4,018
[1, 2) 663 711 774 1,141 1,272 1,395 1,524 1,573 1,876 1,901 2,081 2,190 2,242 2,407 2,384 2,532
[2, 3) 341 280 663 869 1,002 1,109 1,176 1,470 1,450 1,674 1,669 1,709 1,892 1,861 1,991 2,157
[3, 5) 545 653 962 1,299 1,516 1,847 2,026 2,207 2,340 2,462 2,590 2,699 2,737 2,910 3,038 3,128
[5, 7) 267 310 529 907 1,136 1,214 1,424 1,419 1,545 1,547 1,589 1,658 1,794 1,806 1,849 1,954
[7, 10) 480 499 672 856 1,053 1,108 1,165 1,152 1,180 1,215 1,290 1,324 1,479 1,477 1,538 1,544
>= 10yr 557 617 695 853 1,017 1,181 1,331 1,534 1,677 1,848 2,037 2,184 2,364 2,629 2,905 3,220
Total 4,434 5,222 6,998 8,488 9,616 10,742 11,684 12,509 13,272 14,054 14,789 15,478 16,223 16,970 17,745 18,553
[0, 5) 3,130 3,796 5,101 5,872 6,410 7,239 7,764 8,404 8,871 9,444 9,873 10,311 10,587 11,058 11,453 11,835
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Maturity distribution by original issuance type and term can be found in the appendix (slide 45).
21
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on the following page for details. Maturity distribution by original issuance type and term can be found in the appendix (slide 45).
22
End of Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
< 1yr 35.7% 41.2% 38.6% 30.2% 27.2% 26.9% 26.0% 25.2% 24.1% 24.2% 23.9% 24.0% 22.9% 22.9% 22.8% 21.7%
[1, 2) 15.0% 13.6% 11.1% 13.4% 13.2% 13.0% 13.0% 12.6% 14.1% 13.5% 14.1% 14.2% 13.8% 14.2% 13.4% 13.6%
[2, 3) 7.7% 5.4% 9.5% 10.2% 10.4% 10.3% 10.1% 11.7% 10.9% 11.9% 11.3% 11.0% 11.7% 11.0% 11.2% 11.6%
[3, 5) 12.3% 12.5% 13.7% 15.3% 15.8% 17.2% 17.3% 17.6% 17.6% 17.5% 17.5% 17.4% 16.9% 17.1% 17.1% 16.9%
[5, 7) 6.0% 5.9% 7.6% 10.7% 11.8% 11.3% 12.2% 11.3% 11.6% 11.0% 10.7% 10.7% 11.1% 10.6% 10.4% 10.5%
[7, 10) 10.8% 9.6% 9.6% 10.1% 10.9% 10.3% 10.0% 9.2% 8.9% 8.6% 8.7% 8.6% 9.1% 8.7% 8.7% 8.3%
>= 10yr 12.6% 11.8% 9.9% 10.0% 10.6% 11.0% 11.4% 12.3% 12.6% 13.1% 13.8% 14.1% 14.6% 15.5% 16.4% 17.4%
[0, 3) 58.3% 60.2% 59.1% 53.9% 50.9% 50.2% 49.1% 49.5% 49.2% 49.7% 49.2% 49.2% 48.4% 48.0% 47.4% 46.9%
[0, 5) 70.6% 72.7% 72.9% 69.2% 66.7% 67.4% 66.5% 67.2% 66.8% 67.2% 66.8% 66.6% 65.3% 65.2% 64.5% 63.8%
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. Maturity distribution by original issuance type and term can be found in the appendix (slide 45).
23
24
Security Type
Bill Bill Bill Bill Bill Coupon Coupon Coupon Coupon Coupon Coupon TIPS TIPS TIPS
Term
4-Week 13-Week 26-Week 52-Week CMBs 2-Year 3-Year 5-Year 7-Year 10-Year 30-Year 5-Year 10-Year 30-Year
StopOutRate (%)*
0.104 0.094 0.139 0.173 0.152 0.271 0.355 0.708 1.150 1.676 2.876 (1.496) (0.720) 0.479
BidtoCover Competitive %Primary NonCompetitive SOMAAdd 10YrEquivalent Ratio* Awards($bn) Dealer* %Direct* %Indirect* Awards($bn) Ons($bn) ($bn)**
4.2 4.5 4.8 5.0 5.0 3.8 3.6 2.9 2.7 2.9 2.6 2.7 2.5 2.8 499.0 405.2 351.3 74.4 105.0 139.0 95.6 139.8 115.9 65.9 42.0 14.0 13.0 7.0 68.1% 69.3% 59.7% 55.7% 76.0% 44.9% 51.5% 41.3% 42.5% 38.7% 48.7% 40.4% 41.3% 37.7% 9.2% 8.0% 7.4% 10.8% 11.8% 26.9% 23.2% 18.1% 19.5% 26.0% 15.4% 10.7% 10.4% 13.2% 22.7% 22.7% 32.9% 33.5% 12.2% 28.2% 25.3% 40.6% 38.0% 35.3% 35.9% 49.0% 48.3% 49.1% 3.3 7.0 6.0 0.5 0.0 0.6 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.41 11.81 20.66 8.53 0.92 31.77 32.66 78.19 88.47 68.53 94.39 7.69 15.55 23.68
*Weighted averages of Competitive Awards. **Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS 10-Year Equivalent, a constant auction BEI is used as the inflation assumption.
25
26
Bid-to-Cover Ratio 1.5 2 3 4 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 2-Year Dec-09 Mar-10 3-Year Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 5-Year 2.5 3.5
Bid-to-Cover Ratios for 2-, 3-, and 5-Year Nominal Securities (6-Month Moving Average)
27
Bid-to-Cover Ratio 2.2 2.4 2.6 2.8 3.2 3.4 2 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 10-Year Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 30-Year 3
Bid-to-Cover Ratios for 7-, 10-, and 30-Year Nominal Securities (6-Month Moving Average)
7-Year
28
Bid-to-Cover Ratio 1.5 2.5 3.5 1 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 2 3
10-Year (6-month moving average) Dec-06 5-Year Dec-07 20-Year 30-Year Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
29
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 30 Pension and Insurance.
Change in Demand Over the Last Year in Bills, Auction Awards by Investor Class
5% 4% Change from Previous 4 Quarters 3% 2% 1% 0% -1% -2% -3% Investment Funds Other Dealers & Brokers Foreign & International Primary Dealers Other
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 31 Pension and Insurance. These results may include seasonal effects. Previous 4 Quarters = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
Investor Class Auction Awards: 2-, 3-, and 5-Year Nominal Securities Fiscal Year 2013-Q1
Other 0.9%
Investor Class Auction Awards: 7-, 10-, and 30-Year Nominal Securities Fiscal Year 2013-Q1
Other 0.7%
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 32 Pension and Insurance.
Change in Demand Over the Last Year in 2-, 3-, 5-Year Nominal Securities, Auction Awards by Investor Class
15%
5%
0%
-5%
-10%
-15% Other Dealers & Brokers Investment Funds Foreign & International Primary Dealers Other
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 33 Pension and Insurance. These results may include seasonal effects. Previous 4 Quarters = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
Change in Demand Over the Last Year in 7-, 10-, 30-Year Nominal Securities, Auction Awards by Investor Class
15%
5%
0%
-5%
-10% Investment Funds Other Dealers & Brokers Foreign & International Primary Dealers Other
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 34 Pension and Insurance. These results may include seasonal effects. Previous 4 Quarters = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 35 Pension and Insurance.
Change in Demand Over the Last Year in TIPS, Auction Awards by Investor Class
8%
4%
2%
0%
-2%
-4%
-6% Other Dealers & Brokers Foreign & International Primary Dealers Investment Funds Other
Excludes SOMA add-ons. The Other category includes categories that are each less than 2%, which include Depository Institutions, Individuals, 36 Pension and Insurance. These results may include seasonal effects. Previous 4 Quarters = Total Awards for the previous 4 quarters divided by Total Auction Awards of the previous 4 quarters
2/3/5
7/10/30
TIPS
37
20%
15%
10%
5%
0% Mar-10 Mar-11 Mar-12 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Sep-09 Sep-10 Sep-11 Sep-12
Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
38
2/3/5 Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
7/10/30
39
20%
15%
10%
5%
0% Mar-10 Mar-11 Mar-12 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Sep-09 Sep-10 Sep-11 Sep-12
5-Year
10-Year
20-Year
30-Year
Excludes SOMA add-ons. Foreign includes both private sector and official institutions.
40
65%
60%
55%
50%
45%
40%
35% Mar-10 Mar-11 Mar-12 Dec-09 Dec-10 Dec-11 Dec-12 Jun-09 Jun-10 Jun-11 Jun-12 Sep-09 Sep-10 Sep-11 Sep-12
4/13/26-Week (13-week moving average) 2/3/5 (6-month moving average) TIPS (6-month moving average)
41
Appendix
42
100% 90% 80% 70% % of Portfolio 60% 50% 40% 30% 20% 10% 0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
End of Fiscal Year Bills 2/3/5 7/10/30 TIPS (principal accreted to projection date)
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury. See table on the following page for details.
2022
43
End of Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Bills 21.3% 21.6% 28.5% 28.5% 21.1% 15.4% 15.0% 13.9% 13.0% 12.3% 11.6% 11.0% 10.5% 10.0% 9.6% 9.2% 8.8%
2-, 3-, 5-Year Nominal Coupons 40.5% 38.9% 34.5% 36.2% 40.1% 41.4% 38.4% 36.1% 33.9% 31.7% 31.0% 30.8% 30.5% 30.4% 30.4% 30.5% 30.4%
7-, 10-, 30-Year Nominal Coupons 29.0% 29.2% 26.9% 27.4% 31.8% 35.9% 39.0% 42.0% 44.8% 47.3% 48.5% 49.0% 49.4% 49.6% 50.0% 50.4% 51.1%
Total Nominal Coupons 69.5% 68.1% 61.4% 63.6% 71.9% 77.3% 77.4% 78.0% 78.7% 79.1% 79.5% 79.8% 79.9% 80.0% 80.4% 80.9% 81.5%
TIPS (principal accreted to projection date) 9.2% 10.3% 10.0% 7.9% 7.0% 7.3% 7.5% 8.0% 8.3% 8.6% 8.9% 9.2% 9.6% 9.9% 10.0% 9.9% 9.8%
Portfolio & SOMA holdings as of 12/31/2012 and estimated projections of the Large Scale Asset Purchase program announced on 12/12/2012 by the Federal Reserve assumed to last for about 1 year. This assumption is based on the Federal Reserves most recent primary dealer survey. To match OMBs projected borrowing from the public for the next 10 years, nominal coupon securities (2-, 3-, 5-, 7-, 10-, and 30-year) were adjusted by the same percentage. OMBs projections of borrowing from the public are from Table S-5 and S-14 of the Fiscal Year 2013 Mid-Session Review Budget of the US Government. The principal on the TIPS securities were accreted to each projection date based on market ZCIS levels. This scenario does not represent any particular course of action that Treasury is expected to follow. Instead, it is intended to demonstrate the basic trajectory of average maturity absent changes to the mix of securities issued by Treasury.
44
Issue 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 4Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 13Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 26Week 52Week 52Week 52Week CMBs CMBs CMBs CMBs CMBs
SettleDate 10/4/2012 10/11/2012 10/18/2012 10/25/2012 11/1/2012 11/8/2012 11/15/2012 11/23/2012 11/29/2012 12/6/2012 12/13/2012 12/20/2012 12/27/2012 10/4/2012 10/11/2012 10/18/2012 10/25/2012 11/1/2012 11/8/2012 11/15/2012 11/23/2012 11/29/2012 12/6/2012 12/13/2012 12/20/2012 12/27/2012 10/4/2012 10/11/2012 10/18/2012 10/25/2012 11/1/2012 11/8/2012 11/15/2012 11/23/2012 11/29/2012 12/6/2012 12/13/2012 12/20/2012 12/27/2012 10/18/2012 11/15/2012 12/13/2012 11/8/2012 11/15/2012 11/23/2012 12/6/2012 12/14/2012
StopOut Rate(%)* 0.100 0.115 0.125 0.125 0.130 0.120 0.145 0.155 0.175 0.060 0.050 0.015 0.045 0.085 0.100 0.105 0.100 0.125 0.105 0.105 0.090 0.100 0.090 0.090 0.040 0.085 0.135 0.145 0.150 0.150 0.160 0.150 0.145 0.135 0.145 0.140 0.135 0.090 0.130 0.180 0.180 0.160 0.125 0.190 0.155 0.165 0.090
BidtoCover Competitive Ratio* Awards($bn) 3.86 39.76 4.17 39.75 4.01 39.68 4.46 39.65 5.23 24.69 4.73 39.65 4.14 39.61 4.12 39.55 4.32 38.76 4.08 39.66 4.64 39.76 3.99 39.67 3.80 38.77 4.63 31.16 4.55 31.11 4.61 31.16 4.69 31.25 4.36 31.43 4.56 31.37 4.33 31.19 4.73 31.29 4.59 30.62 4.39 31.31 4.63 31.41 4.44 31.37 4.06 30.52 4.79 26.46 4.68 26.94 5.00 26.79 4.73 27.06 4.44 27.66 4.76 27.19 4.98 27.13 4.91 27.32 4.94 26.68 5.17 27.06 5.05 27.17 4.75 27.31 4.50 26.56 4.86 24.86 5.08 24.73 4.96 24.86 4.72 25.00 4.69 25.00 5.23 20.00 5.11 25.00 5.62 10.00
BillIssues %Primary Dealer* %Direct* %Indirect* 71.5% 9.7% 18.8% 69.9% 6.6% 23.5% 67.6% 10.3% 22.1% 74.0% 11.9% 14.1% 47.7% 11.3% 41.0% 62.4% 9.3% 28.3% 56.3% 7.2% 36.5% 73.6% 7.4% 19.1% 76.0% 14.6% 9.3% 66.3% 6.7% 27.0% 54.2% 10.8% 35.0% 82.5% 7.4% 10.1% 76.4% 6.6% 16.9% 65.8% 7.1% 27.1% 58.9% 8.4% 32.7% 62.2% 9.3% 28.5% 71.8% 7.1% 21.1% 65.3% 8.1% 26.7% 76.0% 6.9% 17.1% 67.1% 5.9% 27.1% 70.9% 7.7% 21.5% 67.2% 8.4% 24.4% 78.1% 7.2% 14.6% 83.6% 10.3% 6.0% 71.2% 9.1% 19.7% 62.0% 8.5% 29.5% 58.5% 7.9% 33.7% 70.4% 8.2% 21.4% 55.5% 7.8% 36.7% 71.6% 7.8% 20.6% 65.6% 4.8% 29.7% 57.5% 7.9% 34.6% 49.3% 7.6% 43.2% 64.0% 6.2% 29.8% 65.1% 7.2% 27.7% 56.2% 10.0% 33.8% 59.8% 8.7% 31.4% 56.6% 8.4% 35.0% 45.7% 3.6% 50.6% 48.2% 8.1% 43.7% 61.2% 8.6% 30.2% 57.9% 15.5% 26.6% 87.3% 10.9% 1.8% 72.0% 14.7% 13.4% 70.6% 4.4% 25.1% 65.7% 18.1% 16.2% 94.2% 5.8% 0.0%
NonCompetitive Awards($bn) 0.24 0.25 0.22 0.25 0.16 0.25 0.25 0.31 0.25 0.24 0.24 0.33 0.26 0.66 0.62 0.63 0.65 0.42 0.43 0.56 0.51 0.44 0.49 0.49 0.53 0.53 0.59 0.66 0.61 0.57 0.34 0.36 0.42 0.38 0.34 0.44 0.43 0.44 0.44 0.14 0.18 0.15 0.00 0.00 0.00 0.00 0.00
SOMAAdd 10YrEquivalent($ Ons($bn) bn)** 0.00 0.34 0.00 0.34 0.00 0.35 0.00 0.36 0.00 0.21 0.00 0.34 0.00 0.34 0.00 0.32 0.00 0.33 0.00 0.33 0.00 0.34 0.00 0.34 0.00 0.34 0.00 0.88 0.00 0.88 0.00 0.90 0.00 0.90 0.00 0.89 0.00 0.88 0.00 0.88 0.00 0.87 0.00 0.87 0.00 0.87 0.00 0.88 0.00 0.89 0.00 0.89 0.00 1.54 0.00 1.55 0.00 1.57 0.00 1.57 0.00 1.56 0.00 1.54 0.00 1.54 0.00 1.52 0.00 1.52 0.00 1.52 0.00 1.54 0.00 1.56 0.00 1.55 0.00 2.81 0.00 2.75 0.00 2.75 0.00 0.32 0.00 0.35 0.00 0.13 0.00 0.08 0.00 0.01
*Weighted averages of Competitive Awards. **Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards.
45
Issue 2Year 2Year 2Year 2Year 3Year 3Year 3Year 5Year 5Year 5Year 5Year 7Year 7Year 7Year 7Year 10Year 10Year 10Year 30Year 30Year 30Year
SettleDate 10/1/2012 10/31/2012 11/30/2012 12/31/2012 10/15/2012 11/15/2012 12/17/2012 10/1/2012 10/31/2012 11/30/2012 12/31/2012 10/1/2012 10/31/2012 11/30/2012 12/31/2012 10/15/2012 11/15/2012 12/17/2012 10/15/2012 11/15/2012 12/17/2012
StopOut Rate(%)* 0.273 0.295 0.270 0.245 0.346 0.392 0.327 0.647 0.774 0.641 0.769 1.055 1.267 1.045 1.233 1.700 1.675 1.652 2.904 2.820 2.917
NominalCouponSecurities BidtoCover Competitive %Primary NonCompetitive SOMAAdd 10YrEquivalent($ Ratio* Awards($bn) Dealer* %Direct* %Indirect* Awards($bn) Ons($bn) bn)** 3.60 34.73 55.3% 17.5% 27.2% 0.17 0.00 7.67 4.02 34.73 28.3% 38.2% 33.5% 0.16 0.00 7.78 4.07 34.75 41.9% 23.6% 34.4% 0.15 0.00 7.61 3.59 34.78 53.9% 28.4% 17.7% 0.12 0.00 7.77 3.96 31.87 48.7% 22.5% 28.8% 0.03 0.00 10.56 3.41 31.86 52.7% 22.3% 25.1% 0.04 0.00 10.54 3.36 31.87 53.3% 24.8% 21.9% 0.03 0.00 10.59 3.06 34.98 47.2% 10.7% 42.0% 0.02 0.00 18.90 2.73 34.96 42.2% 15.5% 42.3% 0.04 0.00 19.11 2.89 34.97 38.8% 15.9% 45.4% 0.03 0.00 18.75 2.72 34.93 37.2% 30.4% 32.4% 0.02 0.00 19.10 2.61 28.99 48.1% 17.0% 34.9% 0.01 0.00 21.43 2.56 28.94 43.7% 18.0% 38.2% 0.01 0.00 21.61 2.81 28.99 41.2% 19.7% 39.1% 0.01 0.00 21.26 2.72 28.97 37.0% 23.1% 39.9% 0.03 0.00 21.54 3.26 20.99 35.7% 22.9% 41.4% 0.01 0.00 20.93 2.59 23.97 46.2% 14.1% 39.7% 0.03 0.00 24.27 2.95 20.98 33.1% 42.7% 24.2% 0.02 0.00 21.26 2.49 12.99 59.3% 14.2% 26.5% 0.01 0.00 28.07 2.77 15.98 42.1% 12.4% 45.4% 0.02 0.00 35.32 2.50 12.99 46.1% 20.3% 33.7% 0.01 0.00 28.12
TIPS BidtoCover Competitive %Primary NonCompetitive SOMAAdd 10YrEquivalent($ Ratio* Awards($bn) Dealer* %Direct* %Indirect* Awards($bn) Ons($bn) bn)** 2.70 13.98 40.4% 10.7% 49.0% 0.02 0.00 7.51 2.52 12.98 41.3% 10.4% 48.3% 0.02 0.00 14.96 2.82 6.99 37.7% 13.2% 49.1% 0.01 0.00 23.08
*Weighted averages of Competitive Awards. **Approximated using prices at settlement and includes both Competitive and Non-Competitive Awards. For TIPS 10-Year Equivalent, a constant auction BEI is used as the inflation assumption.
46
Treasury Borrowing Advisory Committee Quarterly Meeting February 2013 Charge Question #2 Mortgage and Housing Market Conditions
We would like the Committee to comment on current conditions in the primary and secondary financing markets for housing credit. Please identify and discuss any barriers or hurdles that impede the availability of credit within these markets. What steps can the banking industry, regulators, and/or policy makers take to assure that the availability of credit to this market continues to improve?
Summary
I.
General Macro and Market Conditions Housing market improving, rate levels down and stock market recovering
II.
Relative Asset Prices Mortgage securities richer, Treasuries cheaper, highgrade and highyield corporates richer
III.
IV.
Primary Market After initially widening, the primary secondary spreads are trending tighter
V.
VI.
Policy/Regulatory Issues Sheer volume and depth of proposals, bills and changes in regulations have created significant uncertainty
November 25, 2008: FOMC Announces QE1 March 18, 2009: FOMC Expands MBS Program to $1.25TN and $300BN Treasuries August 27, 2010: 2010 Jackson Hole Economic Symposium November 3, 2010: FOMC Announces QE2 September 13, 2012: FOMC Announces QE3
10
III. Secondary Mortgage Market: Secondary Mortgage Yield vs. Comparable Amortizing Bond
Mortgage yields are very tight against zero volatility amortizing bond Overall, MBS have richened in response to the latest Fed action, with few signs of excessive market stress
CMM: Yield of MBS at par ZVCC: Par rate for an amortizing bond with cash flows comparable to a par mortgage along the forward curve
11
12
13
14
III. Secondary Mortgage Market: MBS Volatility and Transactions Costs Impacts
Intraday volatility is now at or below preJackson Hole levels
Similarly, dealer estimated mortgage transaction costs were elevated following the September FOMC announcement, but have since returned to pre Jackson Hole levels
Transaction Costs BidOffer Spread in Ticks for 1 Billion Production Coupon FNCL TBA Outright Month Prior To Jackson Week following Jackson Week following 9/13 Hole Hole FOMC Announcement Min 1.0 1.0 2.0 Median 1.5 2.0 3.0 Average 1.4 1.8 2.9 Max 2.0 2.5 4.0
Source: Multiple Dealers
15
Volume and liquidity in the specified pool market do not appear to have been significantly impacted by QE3
Spec Balance Auctioned by all Originators (mm) Values Month Jun Jul Aug Sep Oct Nov Dec Jan Total Sum 66,368 62,556 66,265 67,622 73,648 80,451 55,961 70,559 543,430 Average Pool Size 27 27 31 30 31 30 26 35 30
Source: BAC
16
17
18
5.500
5.000
3.000
2.500
2.000
1.500
CF30MedianPurchasePCC
DeliveryCMM
PCC: Primary current coupon for a purchase money borrower with 70LTV and 750 FICO for a 30 day lock CMM: Yield of MBS at par
19
IV. Primary Market: Post QE3 Impact on Mortgage Applications & Locks
Lower rates resulted in increase in lock volume Mortgage Application index spiked in late Sep 2012 Downturn in lock volume in late Dec 2012 due to holiday season
20
21
1,000 900 800 700 600 500 400 300 200 100 0
PurchaseandRefiOriginations
80 70 60 50 40 30 20 10 0
Sep05
Sep06
Sep07
Sep08
Sep09
Sep10
Sep11
Mar05
Mar06
Mar07
Mar08
Mar09
Mar10
Mar11
Mar12
Sep12
PurchaseOriginations(Bil$'s,LHS) PercentRefis(RHS)
RefiOriginations(Bil$'s,LHS)
*Grey line in above charts represents break between actual vs. forecasted numbers
Mar13
PercentRefi's
22
CF30MedianRefiPCCvsCFMedianPurchPCC
0.500 0.450 0.400 0.350 0.300 0.250 0.200 0.150 0.100 0.050 0.000
10/4/2010 11/4/2010 12/4/2010 10/4/2011 11/4/2011 12/4/2011 10/4/2012 11/4/2012 12/4/2012 1/4/2010 2/4/2010 3/4/2010 4/4/2010 5/4/2010 6/4/2010 7/4/2010 8/4/2010 9/4/2010 1/4/2011 2/4/2011 3/4/2011 4/4/2011 5/4/2011 6/4/2011 7/4/2011 8/4/2011 9/4/2011 1/4/2012 2/4/2012 3/4/2012 4/4/2012 5/4/2012 6/4/2012 7/4/2012 8/4/2012 9/4/2012 1/4/2013
Spread
Purchase PCC: Primary current coupon for a purchase money borrower with 70LTV and 750 FICO for a 30 day lock Refi PCC: Primary current coupon for a refinance borrower with 70LTV and 750 FICO for a 30 day lock
23
V. Capacity Issues
Times to Close extended consistently from 2011 Based on latest data (Source: Ellie Mae) as of Dec 2012, refinance application on an average took 57 days to close and purchase application took 51 days to close.
Days
EllieMaeMortgageOriginations TimetoClose
Refinance 60 50 40 30 20 10 0
082011 092011 102011 112011 122011 012012 022012 032012 042012 052012 062012 072012 082012 092012 102012 112012 122012
Purchase
All
MBS Issuances trend post 2009, indicates industry capacity is approaching the $150B per month high water mark It is clear that the originators capacity would be tested at these levels if rates remain low and HARP 2.0 volume remains consistent over 2013
24
1 New business is defined as issuance of MBS/PC plus purchases of whole loans and does not include purchases of mortgage-related securities. 2 Refer to sources for Alt-A definitions.
Source: www.freddiemac.com/investors/pdffiles/investorpresentation.pdf 3 Repurchase requests outstanding more than four months include repurchase requests for which appeals were pending.
25
26
Mortgage Originations Mortgage Originator Standard including Loan Officer Compensation under TILA/RESPA Abilitytorepay Qualified Mortgages (QM) Mortgage Rules & Disclosures
CFPB
CFPB CFPB
Requirements for Escrow Accounts Appraisal Proposal under amend the Equal Credit Opportunity Act (ECOA)s Regulation B
CFPB CFPB
CFPB
CFPB
Boxer/Menendez bill
Senate
Creates rules for loan originator compensation that are clear, balanced and CFPBs proposed requirement for a creditor to offer a consumer a crafted to assure there are no abuses while maintaining a structure in which comparable, alternative loan when a consumers original loan has discount points and origination points or fees originators can be compensated Established minumum mortgage underwriting standards for determining a Large number of new rules with the potential to increase the cost and consumers' abilitytorepay complexity of mortgage origination New restrictions prepayment penalties, single premium credit insurance, arbitration, negative amortization, and partial payments. a. For highcost mortgages, provides new points/fees definition and prepayment penalty test, and adjusts APR test Requires the mandatory establishment of escrow accounts for T&I. Proposed rule that would require mortgage lenders to provide home loan Under the proposed rule, creditors could still charge reasonable fees applicants with copies of written appraisals and other home value estimates associated with conducting appraisals and home value estimates; however, the rule would prohibit creditors from charging consumers fees for developed in connection with the application. propertys value was determined. Imposes appraisal independence requirements on any person obtaining the reports. a relatively short and uncomplicated proposal would increase lender's overhead and require changes in the information extending credit or providing services for a consumer credit transaction technology, their compliance guides, their employee training rules and secured by a consumers principal dwelling manuals, etc. Concerns around using an allin APR will increase the number of loans that Proposal establishes rules for appraisals for a category of loans called higherrisk mortgage loans, closed end loans on principal dwelling with exceed compliance thresholds for various laws and regulations rates similar to thresholds for higher priced mortgage loans in Reg Z. QM loans are excluded. Qualified Residential Mortgages would be exempt from the DoddFrank Act GSEs and FHA exempt. Depending on definition of QM, and resolution of requirement that securitizers/originator retain a 5% economic interest in key issues (e.g., premium recapture) potentially significant increases in cost secutitized loans Expansion of underwater refinance program to NonGSE loans; includes Uncertainty over who will bear costs of forgiveness, loss of margin and fees and UPB forgiveness component extent of fees charged Focus on reducing market share of FHA could be accomplished by reducing FHA has been critical recently in the purchase and firsttime home buyer FHA loan limits or downpayment requirements market. New restrictions could reduce availibility of credit for these consumers.
Policymakers
27
Issue
Agency
Description
FHFA
Proposed framework for a common securitization platform and a model Pooling and Servicing Agreement
FHFA
UST
Proposal to adjust the guarantee fees (gfees) that Fannie Mae and Freddie Mac charge on singlefamily mortgages in states where costs related to foreclosure practices are statistically higher than the national average. The size of the fee adjustments are intended to reflect the disparity in costs, as compared to the national average. On August 17, Treasury revised its preferred stock purchase agreements with the GSEs to eliminate the 10 percent dividend, while instituting an income sweep on GSE profits Fannie Mae and Freddie Mac are launching a new rep and warrant framework for conventional loans to clarify lenders repurchase exposure and liability on future deliveries.
FHFA
Servicing compensation
FHFA
28
CFPB
These two notices contain rules to protect homeowners from surprises and costly mistakes by their mortgage servicers States are introducing their own mortgage servicing standards that need to be put in place in addition to OCC standards Municipalities are exploring seiizng mortgage notes via Eminet Domain concept Proposed MSR rules would increase risk weighting for MSRs Proposed rules would increase riskweighting associated with Private Label Securitization; Proposed rules increase risk weighting associated with whole loans
State specific Servicing Standards Eminent Domain Capital BASEL III Proposed MSR capital rules BASEL III Proposed treatment of PLS BASEL III Proposed treatment of Whole Loans Return of Private Label Uncertanty regarding pending regulations Rep and Warrants Liabilities
Market Participants can not plan for the future and are in a "pullback" mode as various issues are circulating Part of FHFA's strategic Plan is to pursue R&W for loans sold to GSEs prior to 1/1/13 Lack of confidence in rating agency models or the agencies themselves The volume of MI rescissions that lenders are experiencing today reflects a lack of clarity on the scope of mortgage insurance coverage In total, 17 banks face possible penalties for allegedly misrepresenting the quality of the collateral backing these securities. According to the lawsuits, the FHFA found evidence of violations in $190 billion worth of MBS sold to Fannie and Freddie. The allegations range from misrepresented loanto value ratios, employment and occupancy status of the borrower.
N/A N/A
Lawsuits filed by FHFA against Major Financial Institutions for MBS sold ro GSEs during housing boom
FHFA
29
TBAC Presentation
February 5, 2013
Charge #3: For the past several years, Treasury has been pursuing a policy of extending the average maturity of its debt. Should Treasury consider even more rapidly extending the weighted average maturity of its debt? If Treasury were to do so, what strategies might best assist us in achieving the goal, while remaining consistent with our broader debt management principles?
Source: Bloomberg
Source: Bloomberg
Term Premium
Jeremy Stein, Federal Reserve Governor, November 30, 2012:
Treasury term premiums are now near historic lows, on the order of minus 80 basis points, according to a model used by the Board staff.
Data from the Kim-Wright model are available daily since 1990. The data include the estimated term premium on zero-coupon bonds of maturities 1, 2, 10 years. These data are updated frequently and are publicly available on the Federal Reserve website.
Source: Kim, D. and J. Wright, (2005) An Arbitrage Free Three-Factor Term Structure Model and the Recent Behavior of Long-Term Yields and DistantHorizon Forward Rates http://www.federalreserve.gov/pubs/feds/2005/200533/200533pap.pdf 5
Term Premium
Kim-Wright term premiums are negative at 2y, 5y and 10y 10y term premium turned negative in August 2011
* Assume that the WAM of new issuance is increased through 2017. After 2017 revert to current WAM of new issuance. Maintain constant nominal amount of bills outstanding throughout.
Faster maturity extension would require the investors to absorb more than this base case
Distribution of Outstanding Debt, 2012 and 2017 ($bn) 2017 Faster Maturity Extension Option 1 Option 2 $bn 1,629 1,784 5,855 3,204 234 2,243 0 14,948 from 2012 0 480 1,346 824 -154 1,406 0 3,902 $bn 1,629 1,943 6,196 2,838 234 1,814 295 14,948 from 2012 0 639 1,687 459 -154 977 295 3,902
Base Case 2012 1,629 1,304 4,509 2,379 388 837 0 11,046 $bn 1,629 2,019 6,359 2,881 234 1,827 0 14,948 from 2012 0 715 1,850 501 -154 990 0 3,902
Option 3 $bn 1,629 1,784 5,855 2,745 1,150 1,785 0 14,948 from 2012 0 480 1,346 366 762 948 0 3,902
Bills Notes/Bonds/TIPS <= 1 year 2-5 years 6-10 years 11-20 years 21-30 years 31+ years Total
10
11
# of Auctions Bills* Notes/Bonds 2-yr note 3-yr note 5-yr note 7-yr note 10-yr note 20-yr bond 30-yr bond 50-yr bond TIPS** 5-yr TIPS 10-yr TIPS 30-yr TIPS Total 52 (weekly)
12 12 12 12 12 12 12 4
40 39 39 33 24 . 16 .
31 31 39 33 30 . 23 .
-8 -8
6 . 7
37 36 39 33 24 . 16 15
-2 -3 . . . . . 15
31 31 39 33 24 16 16
-8 -8 . . . 16 . .
3 6 3
52 96 26
4,088 2,459
17 16 9
52 119 38 4,083
17 20 13
4 4
52 96 26 4,087
17 16 9
. . .
52 96 26 4,087
17 16 9
. . .
*Bills issuance is equal to the total bills outstanding as of Dec 31, 2013 **TIPS are assumed to be 12% of 30y issuance, 25% of 10y issuance, and 10% of 5y Issuance
12
13
* The Faster Maturity Extension depicted in the following four charts corresponds to Option 1: From 2013 to 2017, reduce 2y/3y issuance by 4pp each, increase 10y/30y issuance by 4 pp each; after 2017 revert to current maturity structure of issuance
14
15
Preliminary estimate: these two factors cancel each other over 10 yrs => no net savings
NOTE: The forecasts for the 3m and 10y Treasury rate are from the CBO (Aug 2012). By 2017 the yield curve is assumed to return to its average shape over the past 20 years. These forecasts do not include any impact of faster maturity extension on rates
16
* The TBAC Aug 2011 analysis relied on work by Gagnon, J., M. Raskin, J. Remache and B. Sack (2010). The original Gagnon et al (2010) analysis has been used by the Federal Reserve to estimate the impact of LSAPs on term premium and interest rates.
17
Source: Bloomberg
18
19
20
21
22
Source: CS,JPM,Blackrock
23
Local, Sovereign, and Corporate Issuers have also been extending duration
Yields and Duration of US Fixed Income
YIELD 2006 Total Treasury Government-related Agency Local authority Sovereign Supranational Corporate Industrial Utility Financials Securitized MBS ABS CMBS 5.34% 4.79% 5.13% 5.11% 5.30% 5.36% 5.02% 5.66% 5.81% 5.79% 5.47% 5.59% 5.63% 5.32% 5.36% 2012 1.7% 0.9% 1.5% 1.0% 3.2% 2.7% 0.7% 2.7% 2.6% 3.0% 2.6% 2.1% 2.1% 0.9% 1.8% -3.6 -3.9 -3.7 -4.1 -2.1 -2.6 -4.3 -3.0 -3.2 -2.8 -2.9 -3.5 -3.5 -4.4 -3.5 Change 2006 4.46 4.95 3.98 3.55 7.78 5.83 4.29 6.05 6.64 7.12 5.16 3.60 3.46 2.77 4.83 DURATION YEARS 2012 5.02 5.52 5.12 3.87 9.72 8.19 3.48 7.25 7.74 9.17 5.72 2.93 2.92 3.21 3.17 0.6 0.6 1.1 0.3 1.9 2.4 -0.8 1.2 1.1 2.1 0.6 -0.7 -0.5 0.4 -1.7 Change
Source: BarclaysCapital;Bloomberg;BlackRock
24
25
*Importantly UK pension liabilities are inflation-linked, ie grow over time with the path of realized inflation (contrast US liabilities which are fixed $ values)
26
Source: Bloomberg,U.S.Treasury,CenterforFinancialStability
27
Conclusions
Treasury yields have fallen since Feb 2011
Some measures suggest the term premium is currently negative
Outstanding debt between 21-30 yrs of maturity will roughly double over the coming 5 years Benefits from faster WAM extension are small
Small (<2pp) decrease in percent of portfolio maturing each year Preliminary estimate: no net savings, assuming CBOs interest rate forecast is realized Cost/benefit analysis changes significantly if interest rates move sharply higher
Absent changes in the accounting or regulatory environment, demand in excess of already planned long end issuance is uncertain. Treasury should further explore issuance philosophy
Opportunistic issuance Distribution methodology
28
Appendix
- WAM extension dynamics - Assumptions for Scenario Analysis
29
Appendix
WAM extension dynamics As the portfolio matures, the maturing securities are reissued at longer maturities out the curve. This means that the WAM of the portfolio can be extended, even if the WAM of new issuance is below the WAM of the overall portfolio. Example:
A portfolio with 50 percent in 30y bonds and 50 percent in 1 week bills has a WAM of 15 years. Assume of the bills are reissued as 5y notes. The WAM of new issuance is 5 years. The new portfolio is: 50 percent in 30y bonds, 25 percent in 5y notes, and 25 percent in 1 week bills. This portfolio has a WAM of 17.5 years. => WAM of the total portfolio was extended by 2.5 years, even though the WAM of new issuance was lower than the WAM of the original portfolio
30
Appendix
Assumptions for Scenario Analysis (1 of 2)
BASE CASE: Debt Issuance and Outstanding ($ billions) [1] [2] [3] [4] [5] [6] [7] [8] Bills (outstanding as of Dec 31st) Seasoned Coupons w Maturity < 1 year Deficit (source: OMB MSR '12) Dec Tax Deal (source: OMB Dec '12) Other Financing Needs (source: OMB MSR '12) Treasury Net Financing Needs ([3]+[4]+[5]) Gross Coupon Issuance (prior yr [2] + [6]) Total Debt Outstanding (Coupon + Bills) 2013 1,629 1,447 991 -4 168 1,155 2,459 12,201 2014 1,629 1,562 661 -42 142 761 2,208 12,962 2015 1,629 1,862 595 -57 142 680 2,242 13,642 2016 1,629 1,859 615 -65 134 684 2,546 14,326 2017 1,629 2,019 576 -74 120 622 2,481 14,948 2018 1,629 2,108 543 -79 114 578 2,597 15,526 2019 1,629 2,208 578 -87 105 596 2,704 16,122 2020 1,629 2,318 604 -98 95 601 2,809 16,723 2021 1,629 2,299 627 -108 95 614 2,932 17,337 2022 1,629 2,481 652 -123 99 628 2,927 17,965
*The forecasts for the 3m and 10y Treasury rate are from the CBO (Aug 2012). By 2017 the yield curve is assumed to return to its average shape over the past 20 years. These forecasts do not include any impact of faster maturity extension on rates
31
Appendix
Assumptions for Scenario Analysis (2 of 2)
New Notes/Bonds/TIPS Issuance (Pct of Total) Base CaseFrom 2013 onwards use the 2011 percentages Maturity 2 3 5 7 10 30 2010 21.3% 19.6% 21.6% 16.3% 13.4% 7.7% 2011 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2012 20.2% 17.7% 22.2% 16.8% 14.9% 8.2% 2013 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2014 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2015 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2016 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2017 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2018 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2019 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2020 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2021 19.4% 18.9% 21.3% 16.1% 15.5% 7.5% 2022 19.4% 18.9% 21.3% 16.1% 15.5% 7.5%
Option 1 From 2013 to 2017, subtract 4pp from the 2/3 percentage in 2011, add 4 pp to the 10/30 percentage in 2011, after 2017 revert to 2011 percentag
Maturity 2 3 5 7 10 30 2010 21.3% 19.6% 21.6% 16.3% 13.4% 7.7% 2011 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2012 20.2% 17.7% 22.2% 16.8% 14.9% 8.2% 2013 15.4% 14.9% 21.3% 16.1% 19.5% 12.8% 2014 15.4% 14.9% 21.3% 16.1% 19.5% 12.8% 2015 15.4% 14.9% 21.3% 16.1% 19.5% 12.8% 2016 15.4% 14.9% 21.3% 16.1% 19.5% 12.8% 2017 15.4% 14.9% 21.3% 16.1% 19.5% 12.8% 2018 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2019 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2020 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2021 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 2022 19.4% 18.9% 21.3% 16.1% 15.5% 8.8%
Option 2 From 2013 to 2017, subtract 1.25pp from the 2/3 percentage in 2011, add 2.5 pp to the 30 percentage in 2011, after 2017 revert to 2011 percent
Maturity 2 3 5 7 10 30 50 2010 21.3% 19.6% 21.6% 16.3% 13.4% 7.7% 0.0% 2011 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0% 2012 20.2% 17.7% 22.2% 16.8% 14.9% 8.2% 0.0% 2013 18.1% 17.7% 21.3% 16.1% 15.5% 8.8% 2.5% 2014 18.1% 17.7% 21.3% 16.1% 15.5% 8.8% 2.5% 2015 18.1% 17.7% 21.3% 16.1% 15.5% 8.8% 2.5% 2016 18.1% 17.7% 21.3% 16.1% 15.5% 8.8% 2.5% 2017 18.1% 17.7% 21.3% 16.1% 15.5% 8.8% 2.5% 2018 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0% 2019 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0% 2020 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0% 2021 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0% 2022 19.4% 18.9% 21.3% 16.1% 15.5% 8.8% 0.0%
Option 3 From 2013 to 2017, subtract 4pp from the 2/3 percentage in 2011, add 4 pp to the 20y percentage in 2011, after 2017 revert to 2011 percentages
Year 2 3 5 7 10 20 30 2010 21.3% 19.6% 21.6% 16.3% 13.4% 0.0% 7.7% 2011 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8% 2012 20.2% 17.7% 22.2% 16.8% 14.9% 0.0% 8.2% 2013 15.4% 14.9% 21.3% 16.1% 15.5% 8.0% 8.8% 2014 15.4% 14.9% 21.3% 16.1% 15.5% 8.0% 8.8% 2015 15.4% 14.9% 21.3% 16.1% 15.5% 8.0% 8.8% 2016 15.4% 14.9% 21.3% 16.1% 15.5% 8.0% 8.8% 2017 15.4% 14.9% 21.3% 16.1% 15.5% 8.0% 8.8% 2018 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8% 2019 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8% 2020 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8% 2021 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8% 2022 19.4% 18.9% 21.3% 16.1% 15.5% 0.0% 8.8%
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