What is the Treasury's goal for federal debt management?
Treasury's overarching debt management goal is to ensure the federal government's financing needs are met at the lowest cost to taxpayers over time. To achieve this goal, Treasury issues a variety of marketable Treasury securities in sufficient amounts to ensure the liquidity of each and maintains a regular and predictable auction schedule. This schedule provides investors with greater certainty and better information with which to plan their investments.
What challenges does the Treasury face in achieving its debt management goal?
Treasury deals with challenges of constantly changing financial markets, uncertainties surrounding the government's future borrowing needs, and at times uncertainty about the debt limitA legal ceiling on the amount of outstanding total federal debt (excluding some minor adjustments), which must be raised periodically to accommodate additional federal borrowing..
Treasury must consider the volume of securities to be issued at a given maturity in relation to changing market demands for Treasury securities. Treasury market participants purchase Treasury securities for a variety of purposes, including securing stable sources of income, trading to take advantage of their anticipations of interest rate movements, or reducing risk (also known as "hedging"). If the Treasury offers too much of any given security, it may have to pay a higher yield to attract investors. If the Treasury offers too little of a given security, it may reduce the security's liquidity in the secondary market, which, in the long run, may also increase the yield Treasury has to pay.
The Treasury must make current debt management decisions with uncertain information about the future of government borrowing needs. Policy changes and national economic performance are difficult to project and can quickly and substantially affect federal cash flow.
GAO reported in 2011 that delays in raising the debt limitA legal ceiling on the amount of outstanding total federal debt (excluding some minor adjustments), which must be raised periodically to accommodate additional federal borrowing. create debt and cash management challenges for the Treasury that have been exacerbated in recent years by the large growth in federal debt. In the past, Treasury has often used extraordinary actions, such as suspending investments or temporarily disinvesting securities held in federal employee retirement funds, to remain under the statutory debt limit (see, for example, Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs). However, the extraordinary actions available to the Treasury have not kept pace with the growth in borrowing needs. For additional information, see Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market.
- Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches
- Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs
- Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainly in the Treasury Market
- Debt Ceiling: Analysis of Actions Taken during the 2003 Debt Issuance Suspension Period