Debt Management Modeling: Update
U.S. Department of the Treasury
Office of Debt Management
August 1, 2006
2
Office of Debt Management
Debt Management Model: Update
氓 Key Inputs:
- Macro Variables: GDP, CPI, Deficits
- Yields: Nominal and Real Yield Curves, Volatilities
- Auction Calendar
氓 Key Policy Instrument
- Issuance Strategy
氓 Key Outputs: Steady State Portfolio Characteristics
- Mean and Variance of Interest Costs
- Debt Turnover
- Other portfolio characteristics
氓 Have developed a "beta test version" of the model
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Office of Debt Management
Outputs: Scenario Analysis
氓 Develop a baseline scenario
氓 Use baseline as a benchmark in consideration of alternatives
氓 Key parameters set to roughly match current portfolio
- Debt/GDP ratio
- Portfolio Composition
00Maturity
00Nominal versus inflation-indexed
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Office of Debt Management
A Few Sample Outputs from the Baseline
氓 Debt to GDP Ratio
氓 Mean Interest Cost
氓 Interest Cost "Smoothness"
氓 Interest Cost Uncertainty
氓 Deficit Uncertainty
氓 Cash Balance Uncertainty
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Office of Debt Management
Evaluation of Alternatives
氓 Consider implications of alternative maturity composition of portfolio
氓 Hypothetical Alternative 1: Short End Tilt
氓 Hypothetical Alternative 2: Long End Tilt
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Office of Debt Management
Examples of Possible Evaluation Criteria
Debt to GDP Ratio
0.38
0.39
0.4
0.41
Long End Tilt
Baseline
Short End Tilt
Average Interest Cost
0.039
0.04
0.041
Long End Tilt
Baseline
Short End Tilt
Interest Cost Smoothness
0
0.04
0.08
Long End Tilt
Baseline
Short End Tilt
Interest Cost Uncertainty
0
0.004
0.008
0.012
Long End Tilt
Baseline
Short End Tilt
Deficit Uncertainty
0.0087
0.0088
0.0089
0.009
0.0091
Long End Tilt
Baseline
Short End Tilt
Residual Uncertainty
0
0.001
0.002
0.003
Long End Tilt
Baseline
Short End Tilt
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Office of Debt Management
Other Types of Analysis
氓 New securities
氓 Changes in auction schedule
氓 Changes in economic parameters
氓 Tail Risks
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Office of Debt Management
Comments/Next Steps
氓 Continue to develop model
- Still very preliminary
- Consult with Board and FRBNY
- Consult with Other Debt Issuers
氓 Develop standard charts for Committee's consideration
Proposal for 30-year Bond Issuance
U.S. Department of the Treasury
Office of Debt Management
August 1, 2006
10
Office of Debt Management
Interest Rate Risk (DV01 Risk) Adjusted for Inflation
0
5
10
15
20
25
30
35
40
45
50
Feb-85
Aug-85
Feb-86
Aug-86
Feb-87
Aug-87
Feb-88
Aug-88
Feb-89
Aug-89
Feb-90
Aug-90
Feb-91
Aug-91
Feb-92
Aug-92
Feb-93
Aug-93
Feb-94
Aug-94
Feb-95
Aug-95
Feb-96
Aug-96
Feb-97
Aug-97
Feb-98
Aug-98
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Refunding Date
$ Million
Average Refunding DV01: $27.0 million
Max: $47.5m Nov 86
May 00
Min: $12.6
Feb 07
$28.4m
Feb 06
$39.9m
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Office of Debt Management
Average Maturity of Issuance and Average Maturity of Treasury
Outstanding Debt Assuming Quarterly 30-year Bond Issuance
20
30
40
50
60
70
80
90
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
months
20
30
40
50
60
70
80
90
months
Average Maturity of Issuance
Average Maturity of
Marketable Debt
Outstanding
Projected FY
With Quarterly Issuance in 2007
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