Projection of US Treasury bond structure – Brookings Institution | Vette Leader

The US Treasury Department regularly makes decisions about its debt issuance patterns with the goal of meeting government funding needs at the lowest cost of long-term debt servicing.[1] The overall level of outstanding debt is beyond the Treasury Department’s direct control, as it is determined by federal budget deficits resulting from legislative decisions and economic developments. However, the Treasury exercises full control over the structure of these debt instruments, making decisions about the issuance pattern for different types of securities and different maturities.

We have developed a tool to forecast the structure of government bonds based on assumed funding needs and an assumed path for gross issuance amounts.[2] This tool, which can be found on the Brookings Institution’s public Github page, tracks the outstanding balance of Treasuries (and the evolution of the Federal Reserve’s Treasury holdings) at the individual security level. This post describes the implementation of this tool and provides an illustrative example.

A variety of measures have been used to describe the structure of outstanding government debt. In the presentation released at the time of the quarterly repayment announcement, the Treasury provides the weighted average life of debt, the portion of debt maturing within specified dates, and the portions of debt held in bills of exchange, floating rate notes (FRNs) and inflation-linked securities (TIPS ).[3] The Treasury Borrowing Advisory Committee (TBAC), a group of private market participants with whom the Treasury advises as part of the quarterly repayment process, has considered a more comprehensive set of measures to characterize the outstanding debt.[4]

The structure of the debt, along with market conditions, determines the expected cost of servicing the Treasury’s debt and the risks it faces in relation to those costs, such as: B. their volatility over time. Several efforts have been made in recent years to measure the trade-off between these considerations and to determine the optimal debt structure under a given model (see, for example, this paper published by the Hutchins Center).[5] TBAC itself has incorporated this type of analysis in formulating recommendations on key debt management issues.[6]

Therefore, it is important to be able to make forecasts about the full maturity structure of government bonds – be it to understand the development of various statistics that describe the debt structure or to assess the optimality of this debt structure. These projections need to have a relatively long horizon, since debt management decisions made today will affect the debt structure for many years in the future, and because issuance (excluding bills of exchange) tends to adjust gradually under the “regular and predictable” approach of the treasury.

An additional consideration is that the Fed’s portfolio, known as the System Open Market Account (SOMA), has significantly changed the nature of debt securities. As detailed in a February 2020 TBAC presentation, from the perspective of a consolidated government balance sheet, the government bonds held in the SOMA portfolio (if held to maturity) can be thought of as FRNs indexed to the overnight interest rate.[7] Therefore, it is often useful to adjust the reported debt statistics to reflect this maturity adjustment from the SOMA portfolio.

The tool we developed tracks both the outstanding amount of government bonds and the development of the SOMA portfolio at the individual security level. These two components are considered together as the performance of SOMA’s portfolio (and whether its treasury holdings are reinvested or maturing) affects the treasury’s borrowing needs from the private sector.[8]

The basic mechanics of this tool are as follows: the user enters the path of Treasury borrowing requirements for the forecast horizon, which reflects the assumed budget deficits for the federal government and technical aspects such as the assumed path of Treasury cash balances. The user also enters a gross issuance path for all non-bill securities over the forecast horizon. The assumed gross issuance for non-bill securities provides a path of net issuance outside the bill sector after accounting for maturing securities. The tool then assumes that any funding needs that are not covered by net spend without an invoice will be met by issuing invoices. That said, bills are the residual in this exercise, allowing assumptions about non-trillion spending to capture the Treasury’s regular and predictable approach.[9]

To demonstrate how the tool works, let’s consider a projection that keeps future nominal issuance volumes constant. For the avoidance of doubt, this assumption does not reflect any decision or forecast made by the Treasury Department or TBAC – it is presented here for illustrative purposes only. We input government funding needs based on the latest CBO forecast and expect Treasury cash on hand to grow 3.5% to keep it roughly in line with nominal GDP.

Under these assumptions, we observe some important patterns in the projections:

  • The swap portion of outstanding debt is within TBAC’s recommended range of 15% to 20% for the next few years, albeit at the lower end of that range in the near term.[10] Because this portion is the residual at exercise, it provides an indication of whether the assumptions about the issuance of non-slips are reasonable. If the forecast had instead fallen below the recommended range, it would indicate that non-bill issuance would need to be trimmed to meet TBAC’s Bill Share recommendation.
  • The bill share rises above the projection horizon and eventually moves above the recommended range. At this point, holding non-bill issuance constant does not generate enough net revenue to prevent bill exposure from rising above 20% and non-bill issuance would need to be increased to meet the TBAC recommendation.

  • The weighted average maturity (WAM) of debt will increase slightly over the next few years to a peak of 76 months. The TBAC often qualitatively describes the desired trajectory of the WAM. This tool allows this pathway to be quantified under any desired set of emission assumptions.

The weighted average maturity increases slightly to a high of 76 months

  • The weighted average duration (WAD) of the debt is relatively constant at just over five years. Adjusted for SOMA stocks, the current WAD is reduced by almost 1.5 years. The adjusted WAD measure rises steeply as the fall in SOMA holdings reduces the Treasury’s inventory of zero-duration assets.

The SOMA-adjusted WAD is significantly lower than the overall WAD

  • We can measure the total amount of interest rate risk in the market as the sensitivity of the market value of government bonds to a 1 basis point (or 0.01 percentage point) shift in government bond yields across all maturities. This risk increases significantly over the forecast horizon, from approximately $12 billion today to $16 billion in 2028. Most of this risk arises from outstanding debt with maturities greater than 10 years.

The interest rate sensitivity of government bonds increases by 4 billion

Overall, we hope that this analysis and the accompanying code can serve as a useful tool that will support further assessment of the structure of government debt and its progression.


[1] This goal is nowhere formally stated, but it is a common description used in discussion of debt management issues.
[2] The model presented here is based on the structure of government bond issuance and the form of the input files as of March 2022. The Code might need to be adjusted if the types of government bonds issued and the settlement cycles of the government securities change, or on the structure of the input files.
[3] For example, see slides 24 through 27 of this Treasury presentation https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/.
[4] For example, see the material on slides 48 through 62 of this presentation https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/.
[5] The code to run the optimal debt structure model is also available on the Brookings Institution public github page https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/. This model is intended to assess the optimality of different maturity structures, while the code described here is solely geared towards projecting the maturity structure obtained under certain issuance assumptions (with more detail than used in the optimal debt structure model).
[6] For example, see the material on slides 95 through 109 of this presentation https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/.
[7] See slides 55 to 75 of this presentation https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/.
[8] The Fed typically reinvests its SOMA holdings by rolling amounts due into new securities. These amounts are treated as “add-ons” or additional amounts added to the gross issuance to the private sector. Because our exercise reports gross issuance as the amount offered to the private sector, a Fed decision to halt reinvestment to shrink SOMA implies less net funding for the Treasury compared to the issuance reported in the exercise.
[9] The tool does not track the maturity structure within the bill sector. It simply calculates the amount of outstanding bills needed each month and is independent of how billing is structured to reach that amount.
[10] The target billing range was discussed in a November 2020 TBAC fee. See slides 48-68 of this presentation https://www.brookings.edu/blog/up-front/2022/07/27/projecting-the-structure-of-us-treasury-debt/. This range represents TBAC’s current recommendation and is subject to change by TBAC at any time as conditions change.


Both authors are employees of DE Shaw Group, a global investment and technology development firm. The DE Shaw group reviewed the data and analysis prior to publication. Except as employees of the DE Shaw Group, the authors have received no financial support from any company or person for this article or from any company or person with a financial or political interest in this article. None of the authors is currently an officer, director, or board member of any organization with a financial or political interest in this article. Brian Sack is a member of the US Treasury Borrowing Advisory Committee, but this work does not necessarily reflect the views of that committee.

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