Minutes of the Meeting of the Treasury Borrowing Advisory Committee October 31, 2023

The Committee convened in a closed session at the Department of the Treasury at 8:30 a.m.  All members were present.  Under Secretary for Domestic Finance Nellie Liang, Fiscal Assistant Secretary David Lebryk, Assistant Secretary for Financial Markets Josh Frost, Deputy Assistant Secretary for Federal Finance Brian Smith, and Director of the Office of Debt Management Fred Pietrangeli welcomed the Committee. Other members of Treasury staff present were Dini Ajmani, Sally Au-Yeung, Shantanu Banerjee, Chris Cameron, Nicholas Chisholm, Dave Chung, Gabriella Csepe, Erik Heitfield, Tom Katzenbach, Chris Kubeluis, Kyle Lee, Jeff Rapp, Renee Tang, Thomas Teles, and Laura Thrift. Federal Reserve Bank of New York staff members Oliver Giannotti, Brett Rose, and Kyle Watson were also present. 

Under Secretary Liang opened the meeting by welcoming David Rogal and Anshul Sehgal as the newest members of the Committee.  Liang then provided a brief update on debt management and other Treasury priorities. 

Director Pietrangeli reviewed receipts and outlays during FY2023.  Receipts totaled $4.439 trillion, a decline of $457 billion (-9%) year-over-year, largely due to lower non-withheld tax receipts, elevated IRS processing of refunds, and a decline in remittances from the Federal Reserve.  Outlays totaled $6.134 trillion, a decrease of $137 billion (-2%) year-over-year, which predominantly reflects student loan program modifications offset by increased cost of living adjustments.

Pietrangeli then summarized projections of privately-held net marketable borrowing from the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), and the primary dealers.  Primary dealer estimates of privately-held net marketable borrowing increased over the past three months, with a median cumulative estimate for FY2024-FY2025 approximately $622 billion higher than last quarter.  Dealers noted that their level of confidence around their estimates was low due to uncertainty around the economic outlook, the duration of Federal Reserve System Open Market Account (SOMA) redemptions, and other factors.

Debt Manager Katzenbach reviewed primary dealers’ expectations for coupon issuance.  Most dealers expected increases in nominal coupon auction sizes that were broadly similar to the changes announced in August.  However, some dealers’ expectations suggested a moderation in the pace of auction size increases for longer maturities.  With respect to Treasury Inflation-Protected Securities (TIPS), most dealers expected Treasury to increase the size of the 5-year TIPS reopening in December 2023 and the size of the 10-year TIPS new issue in January, by $1 billion each.

Katzenbach then proceeded to review primary dealers’ perspectives on the regular 6-week cash management bill (CMB).  Nearly all dealers agreed that Treasury should consider elevating this tenor to benchmark status.  Dealers highlighted several advantages to the possible addition of a 6-week benchmark, including distributing growing bill issuance across an additional tenor, enhancing cash management capabilities through the reintroduction of a short-dated Thursday-cycle bill, and focusing increased bill supply within money market mutual funds’ preferred investment habitat.  

Debt Manager Lee reviewed primary dealers’ views on what factors Treasury should consider when scheduling buyback operations.  Dealers broadly noted that operations should avoid coinciding with major data releases, Federal Open Market Committee (FOMC) statement releases, and afternoons before major holidays.  They expected robust participation in operations that occurred in the late morning or early afternoon.  There was not a strong preference regarding which day of the week to conduct operations, and some noted Treasury could operate on Friday mornings, if needed.  Several suggested there may be some benefit to conducting operations a few days before auctions to help facilitate flows leading into the auction.  Finally, most noted that the maximum amount Treasury plans to buy back in each of the nominal and TIPS sectors per quarter was not large and did not express concern if Treasury conducted only one operation per quarter in each sector.  However, a few highlighted that there may be some benefits to conducting smaller, more frequent operations in less liquid or longer-dated sectors.

The Committee reviewed a presentation on the recent drivers of market moves across the Treasury yield curve over the last quarter. The presenting member noted that the increases in yields have occurred primarily in longer maturities, driven by a possible reassessment of the long-run neutral rate and higher term premia.  The presenting member highlighted an upward trend in several estimates for the long-run neutral rate.  The presenting member also discussed a range of potential explanations for the increase in term premia, including various supply and demand dynamics.  The Committee discussed several aspects of the presentation, including recent deficit trends, asset class correlations, and changes in monetary policy expectations.  The presenting member concluded that there is a high degree of uncertainty regarding the outlook for yields going forward. 

The Committee then turned to a presentation on the outlook for demand for Treasuries.  The presenting member discussed recent shifts in the demand base, such as a move toward more price sensitive investors, and the extent to which these shifts may be cyclical or structural.  Over the medium term, the presenting member expected demand from mutual funds, pension funds, and money market funds to increase, with demand from banks and foreign investors to be more limited.  Despite this shift, the presenting member noted that Treasury auctions have continued to be well subscribed.  The presenting member further noted that the future evolution of demand will depend on the global macroeconomic outlook.  The presenting member concluded by recommending Treasury approach future issuance decisions with greater flexibility within the construct of regular and predictable issuance.  Committee members discussed relative demand at different tenors and the degree of flexibility to consider in its recommendations to Treasury.

The Committee adjourned at 12:00 p.m.

The Committee reconvened at 1:15 p.m. 

The Committee discussed its financing recommendation for upcoming quarters.  Based on updated borrowing estimates, the Committee recommended that Treasury continue increasing coupon issuance this quarter and the next.  There was a robust discussion on whether to recommend that Treasury increase nominal coupon auction sizes at the same pace as the previous quarter or to consider moderating the pace of auction sizes increases for longer maturities.  It was noted that the scenarios being discussed resulted in similar maturity profiles in the medium- to long-term.  The Committee recommended similar increases to nominal coupon auction sizes for the upcoming quarter as the previous quarter but to maintain the 20-year bond auction sizes at current levels.  The Committee also recommended gradual increases to Floating Rate Note (FRN) and TIPS auction sizes.  The Committee expressed continued comfort with the bill share of total marketable debt outstanding remaining temporarily above its recommended range given continued robust demand for bills and Treasury’s regular and predictable approach.

The Chair summarized key elements of the Committee report for Secretary Yellen and followed with a brief discussion of recent market developments.

The Committee adjourned at 2:30 p.m.

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Brian Smith

Deputy Assistant Secretary for Federal Finance

United States Department of the Treasury

October 31, 2023

Certified by:

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Deirdre Dunn, Chair

Treasury Borrowing Advisory Committee

October 31, 2023

Treasury Borrowing Advisory Committee Quarterly Meeting

Committee Charge – October 31, 2023

Fiscal Outlook

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, if any, do you recommend to Treasury issuance?  Please also provide perspectives regarding market expectations for Treasury issuance, the effects of changes in SOMA holdings, the evolution of Treasury holdings by different types of investors, as well as auction calendar construction.

Recent Rate Moves

Please discuss the Committee’s views on the factors (and their relative importance) driving market moves across the Treasury yield curve over the last quarter.  Can the moves be explained mostly by fundamental factors or are there technical or positioning factors that Treasury should be aware of?  To what extent has Treasury supply and demand dynamics been a factor?  What are expectations for yields going forward?  In the Committee’s discussion, please include relevant data and analysis that supports or discounts the relative importance of factors being discussed.

Sources of Treasury Demand

Please discuss the Committee’s views on how structural demand for Treasury securities will evolve in the near- and medium-term across different products and tenors.  What factors (e.g., the economic and monetary policy outlook) should Treasury consider when evaluating domestic and foreign demand from different investor classes over the next one to two years?  How should these views inform Treasury’s future issuance decisions?

Financing this Quarter

We would like the Committee’s advice on the following:

• The composition of Treasury notes and bonds to refund approximately $102.2 billion of privately- held notes and bonds maturing on November 15, 2023.
• The composition of Treasury marketable financing for the remainder of the October-December 2023 quarter.
• The composition of Treasury marketable financing for the January-March 2024 quarter.