How Treasury Issues Debt
Updated June 14, 2022
Congressional Research Service
https://crsreports.congress.gov
R40767

How Treasury Issues Debt

Summary
The U.S. Department of the Treasury (Treasury), among other roles, manages the country’s debt.
The primary objective of Treasury’s debt management strategy is to finance the government’s
borrowing needs at the lowest cost over time. To accomplish this Treasury adheres to three
principles: (1) to issue debt in a regular and predictable pattern, (2) to provide transparency in the
decisionmaking process, and (3) to seek continuous improvements in the auction process.
Within the Treasury, the Office of Debt Management (ODM) makes all decisions related to debt
issuance and the management of the United States debt portfolio. When federal spending exceeds
revenues, the ODM directs the Bureau of the Fiscal Service to borrow the funds needed to finance
government operations by selling securities to the public and government agencies through an
auction process. The Bureau of the Fiscal Service manages the operational aspects of the issuance
of Treasury securities, including the systems related to and the monitoring of security auctions.
During the mid-1970s, Treasury faced a period of rising nominal federal budget deficits and debt
requiring unanticipated increases in issuances of securities. Up to that point, debt management
was characterized by an ad-hoc, offering-by-offering survey of market participants. At that time,
Treasury implemented a new debt management strategy that provided greater transparency and
reduced the potential for market volatility. The resulting debt management process modernized
the market for Treasury securities, realizing the benefits of predictability in an environment of
large deficits. A reliance on auctions became a central part of the strategy’s increased focus on
regular and predictable debt management.
Most of the debt sold by the federal government is marketable, meaning that it can be resold on
the secondary market. Currently, Treasury offers five types of marketable securities: Treasury
bills, notes, bonds, inflation protected securities (TIPS), and floating rate notes (FRNs), sold in
about 300 auctions per year. A small portion of debt held by the public and nearly all
intragovernmental debt (debt held by government trust funds) is nonmarketable.
Investors examine several key factors when deciding whether they should purchase Treasury
securities, including price, expected return, and risk. Treasury securities provide a known stream
of income and offer greater liquidity than other types of fixed-income securities. Because they are
also backed by the full faith and credit of the United States, they are often seen as one of the
safest investments available, though investors are not totally immune from losses. Security prices
are determined by investors according to the value of such characteristics in the context of the
financial marketplace.
Legislative activity can affect Treasury’s ability to issue debt and can impact the budget process.
Congress sets a statutory limit on the permissible amount of federal debt to assert its
constitutional prerogatives to control spending and impose a form of fiscal accountability. The
statutory limit on the debt can constrain debt operations, and, in the past, has hampered traditional
practices when the limit was approached. The accounting of asset purchases in the federal budget
has created differences between how much debt Treasury has to borrow to make those purchases
and how much the same purchases will impact the budget deficit. If budget deficits continue to
rise, thereby causing more resources to be devoted to paying interest on the debt, there will be
fewer funds available to spend on other federal programs, all else equal.
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How Treasury Issues Debt

Introduction
The U.S. Department of the Treasury (Treasury) is responsible for issuing federal government
debt. Debt issuance is a core component of Treasury’s role as the manager of government
operations, as it is needed when tax revenue collections are insufficient to meet the demand of
federal obligations.1 The primary objective of Treasury’s debt management strategy is to finance
the government’s borrowing needs at the lowest cost over time. To accomplish this Treasury
adheres to three principles: (1) to issue debt in a regular and predictable pattern, (2) to provide
transparency in the decisionmaking process, and (3) to seek continuous improvements in the
auction process.
Within the Treasury, the Office of Debt Management (ODM) makes all decisions related to debt
issuance and the management of the United States debt portfolio. When federal spending exceeds
revenues, the ODM directs the Bureau of the Fiscal Service to borrow the funds needed to finance
government operations by selling securities to the public and government agencies through an
auction process. The Bureau of the Fiscal Service manages the operational aspects of the issuance
of Treasury securities, including the systems related to and the monitoring of security auctions.
Concerns over the long-term fiscal outlook of the United States underscore the importance of
Treasury’s role in financing the obligations of the country, as rising long-term obligations devoted
to federal retirement and health care programs are projected to cause large increases in future
federal debt. Given these challenges, the ability to maintain efficient and stable debt markets to
ensure confidence and liquidity will remain an issue going forward.
Treasury’s debt management strategy can be complicated by challenges associated with
approaches of total federal debt levels to the statutory debt limit. When the total amount of
federal debt approaches the statutory debt limit, Congress may authorize the Treasury Secretary to
invoke “extraordinary measures” to prevent the limit from binding. Those measures may
compromise Treasury’s ability to reach its borrowing objectives as it seeks to avoid the potential
adverse effects associated with a binding debt limit. As the amount of money owed by the United
States to holders of Treasury securities rises, interest payments can become a greater burden on
taxpayers. If investors choose to purchase Treasury securities, less money is available to fund
private sector investments and other financial instruments. To the extent that these securities are
held by foreign governments or individuals abroad, those investors will be the beneficiaries of the
interest payments.
This report examines Treasury’s debt management practices, focusing on the auction process,
how prices and interest rates of securities are determined, and the role of market participants in
the process. It also addresses the role of debt in influencing present and future budget outcomes.
An Overview of Debt Management Practices
Congress holds the authority to issue debt on behalf of the United States through power granted in
Article I, Section 8 of the Constitution. While this power was delegated to the Secretary of the
Treasury in 1789, Congress retains ultimate control over spending through the budget and
appropriations process, and revenue levels through tax legislation. If spending exceeds revenues,

1 U.S. Department of the Treasury, Duties & Functions of the U.S. Department of the Treasury, available at
http://www.treasury.ogv/about/role-of-treasury/.
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Treasury determines what type of debt instruments are used to finance the borrowing necessary to
fulfill all obligations.
The primary objective of Treasury’s debt management strategy is to fulfill the government’s
borrowing needs at the lowest cost over time. Beyond financing the federal government, the
success of Treasury’s debt management strategy also affects global markets due to the influential
role of the United States in the world economy. As noted earlier, Treasury adheres to three debt
management principles: (1) to issue debt in a regular and predictable pattern, (2) to provide
transparency in the decisionmaking process, and (3) to seek continuous improvements in the
auction process.2 Adoption of this strategy helps to maximize government contributions to growth
and efficiency in both the domestic and global capital markets.
Development of modern debt management dates to the passage of the Second Liberty Bond Act
of 1917. As amended, that legislation designated the Treasury Secretary as the principal authority
to determine the types of issues, terms, and techniques most appropriate to manage public debt.
Before this measure, interest rates and maturity periods of bonds were set by legislation and
congressional authority.3 Further refinements in debt management policy came when Treasury
established the Bureau of Public Debt within the Office of Fiscal Service in June 1940. In the late
1980s, ODM, formerly known as the Office of Market Finance, became the central office
responsible for the decisionmaking behind Treasury’s borrowings. The Bureau of the Public Debt
and the Financial Management Service (FMS) merged in 2012 to form the Bureau of the Fiscal
Service. The Bureau of the Fiscal Service now oversees the operational aspects of the federal
government borrowing process, accounts for and services federal debt, and provides reimbursable
support services to federal agencies under the authority of the Treasury Franchise Fund.4 It also
conducts auctions of Treasury securities to allow individuals, institutions, and financial
professionals to invest in Treasury bills, notes, bonds, inflation-protected securities (TIPS), and
floating rate notes (FRNs).
The Federal Reserve (Fed) works alongside the Treasury in the debt management process, acting
as Treasury’s fiscal agent. The Fed was created in 1913 to institute stability in the banking sector
following a time of financial panic. Initially, the Fed’s role was primarily to oversee the money
supply and supervise the banks during a time of increased borrowing needs as the United States
sought ways to finance World War I expenses.5 For the first several decades of its existence, the
Fed worked closely with Treasury to implement fiscal policy goals. Since the early 1950s,
however, the Fed has operated independently from Treasury and uses its open market operations
to manage the amount of money and credit in the economy via monetary policy. The Fed also
provides banking services to the federal government by maintaining deposit accounts for

2 U.S. Department of the Treasury, Office of Domestic Finance, Overview of U.S. Treasury Debt Management,
available at http://www.treasury.gov/about/organizational-structure/offices/Pages/-Debt-Management.aspx.
3 Tilford C. Gaines, Techniques of Treasury Debt Management (New York: The Free Press of Glencoe, 1962), pp. 19,
21, 154.
4 The Treasury Franchise Fund provides common administrative support services to other parts of Treasury as well as
other government agencies on a competitive and fully cost-reimbursable basis. The collection of delinquent debt owed
to the U.S. government is collected by the Financial Management Service. Department of the Treasury, Bureau of the
Fiscal Service, Treasury Franchise Fund, FY2023 President’s Budget, available at https://home.treasury.gov/system/
files/266/19.-TFF-FY-2023-CJ.pdf.
5 The Federal Reserve Bank of Minneapolis, Born of a Panic: Forming the Fed System, August 1988,
http://www.minneapolisfed.org/publications/the-region/born-of-a-panic-forming-the-fed-system.
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Treasury, paying U.S. government checks drawn on the Treasury, and issuing and redeeming
savings bonds and other government securities.6
How Treasury Sells Debt
During the mid-1970s, the economy experienced a period of rising nominal federal budget
deficits, which increased debt issuance and disrupted financial markets. At that time, Treasury
decided that it needed a new strategy to provide greater transparency and regularity in debt
management.7 The resulting debt management process modernized the market for Treasury
securities, realizing the benefits of predictability in an environment of large deficits. The
modernization also induced policymakers to improve institutional practices.8 As a result, Treasury
was able to raise large amounts of money with a minimal impact on the financial markets. These
policies also extended the average maturity of the national debt and produced a better defined
yield curve.9
Auction Process
Auctions are the cornerstone of Treasury’s debt management strategy.10 Auctions and their
offering amounts are scheduled and announced in advance of the auction date. Bidders in
Treasury auctions may be either foreign or domestic and individual or institutional investors, or
federal, state, or local government entities. Treasury securities can be purchased via a web-based
account using the department’s Treasury Direct system. Purchases of Treasury bills, notes, bonds,
TIPS, floating rate notes, and savings bonds can be made through this system.
The yield-to-maturity, interest coupon rate, and the discount (or premium) on a Treasury security
are key to understanding the auction process. The yield-to-maturity rate is the rate of return
anticipated on a security if it is held until the maturity date and is what is specified by a
competitive bidder at the auction. The interest coupon rate is set at the highest yield level, in
increments of one-eighth of one percent, which does not result in a price greater than 100% of
principal.11 If the price of a Treasury security, as determined at auction, is less than the face value
of the security, then the security may be described as purchased at a discount—if the price
exceeded the value of the security, it is described as purchased at a premium.
Auction bids for Treasury securities may be submitted as noncompetitive or competitive. With a
noncompetitive bid, a bidder agrees to accept the discount rate (or yield) determined at auction
and is guaranteed to receive the full amount of the bid. With a competitive bid, a bidder specifies

6 History of the Federal Reserve, available at http://www.federalreserveeducation.org/about-the-fed/history/. For more
information, seeCRS In Focus IF10054, Introduction to Financial Services: The Federal Reserve, by Marc Labonte.
7 Previously, debt was issued on an offering-by-offering survey of the market, whereby Treasury officials made
decisions on what type of maturities to offer and when they should be offered based on anticipated needs. Auctions
were used during this time for certain types of securities and some predictability did exist.
8 Treasury bills had been issued on a regular basis for decades. With the new strategy, Treasury also began issuing
notes and bonds on a schedule. Garbade, Kenneth D., The Emergence of “Regular and Predictable” as a Treasury
Debt Management Strategy, FRBNY Economic Policy Review, March 2007, pp. 54-55.
9 Garbade, Kenneth D., The Emergence of “Regular and Predictable” as a Treasury Debt Management Strategy,
FRBNY Economic Policy Review, March 2007, pp. 54-55.
10 Though auctions were the main component of the new strategy, Treasury had tried to institute an auction-based
system in 1935 and 1963. Both of these earlier attempts failed.
11 There are no coupon rates for Treasury bills, as Treasury bills are sold on a discount basis.
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the yield that is acceptable.12 A bid may be accepted in a full or partial amount if the rate specified
is less than or equal to, respectively, the discount rate set by the auction.
Once the auction closes, all noncompetitive bids are accepted and competitive bids are ranked
based on yield, from lowest to highest. Competitive bids are accepted, starting at the lowest yield,
until the offering amount has been exhausted. The highest accepted yield becomes the “stop.” A
competitive bid will not be accepted if the rate specified in the bid is higher than the yield set at
the auction. Though interest payments received by successful bidders may vary based on the yield
specified in their auction bids, all securities in an auction are sold for a single price, computed
based on the “stop” yield.13
Marketable Securities
Most of the debt sold by the federal government is marketable, meaning that securities are sold
via the auction process and can be resold on the secondary market. Currently, Treasury offers five
types of marketable securities: Treasury bills, notes, bonds, inflation protected securities (TIPS),
and floating rate notes (FRNs). Treasury holds roughly 300 public auctions per year.14 If Treasury
borrowing requirements or financing policy decisions change, the types of securities, the length
of maturity periods, and offering amounts could be altered.15
Treasury Bills
Treasury bills (T-bills) are short-term securities that mature in one year or less. T-bills are sold at
a discount from their face value. The interest rate determines the discount from face value and the
price paid at auction. When the bill reaches maturity, the investor receives the face value. T-bills
are currently being offered with maturities of 4, 13, 26, and 52 weeks. Auctions for T-bills take
place weekly on Tuesdays (4-week bills) and Mondays (13- and 26-week bills). Every 4 weeks,
52-week bills are auctioned on Tuesdays as well. The timing from the announcement of the
auction, to its execution, to issuance of the purchased security is generally between 7 and 10
days.16
Treasury Notes
Treasury notes are interest-bearing securities, offered in multiples of $100, currently being
offered in 2-, 3-, 5-, 7-, and 10-year fixed maturities. The relationship between yield to maturity
and the interest rate determines the price at auction. If the yield-to-maturity is greater than/equal
to/less than the interest rate, the price will be less than/equal to/greater than par (face) value.
Treasury notes pay interest on a semi-annual basis and the investor receives the face value when

12 For bills and TIPS auctions, the bids are offered in terms of a discount rate rather than a yield.
13 Garbade, Kenneth D. and Jeffrey F. Ingber, The Treasury Auction Process: Objectives, Structure, and Recent
Adaptations, FRBNY Current Issues in Economics and Finance, February 2005, pp. 2-3.
14 U.S. Department of the Treasury, Treasury Auctions, available at https://home.treasury.gov/services/treasury-
auctions.
15 Cash management bills are occasionally offered in order to meet short- and medium-term cash needs as determined
by Treasury. These bills mature on dates determined by Treasury based on need, generally a few days from issue.
Occasionally, Treasury also offers reopenings of previous auctions where additional amounts of a previously issued
security are sold at the same coupon interest rate and maturity, but with a different issue date and price.
16 U.S. Department of the Treasury, Treasury Bills, available at http://www.treasurydirect.gov/instit/marketables/tbills/
tbills.htm.
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the note matures. Treasury notes are currently being auctioned on a monthly basis (2-, 3-, 5-, and
7-year notes) and quarterly (10-year notes).17
Treasury Bonds
Treasury bonds are interest-bearing securities, offered in multiples of $100, with maturities of 20
and 30 years. The price, yield, and interest rate of a Treasury bond are determined at auction in
the same way as a Treasury note. Treasury bonds pay interest on a semi-annual basis and
investors receive face value when the bond matures. Treasury bonds are currently auctioned
quarterly.18
Treasury Inflation-Protected Securities (TIPS)
Treasury Inflation-Protected Securities (TIPS) are interest-bearing securities that protect investors
from inflation, and have been offered since 1997. TIPS are offered in multiples of $100, with
maturity periods of 5, 10, and 30 years. The TIPS principal adjusts based on the movements in the
consumer price index (CPI-urban, non-seasonally-adjusted) with a three-month lag. The
adjustments in the principal of the security form the basis for the interest payments, paid
semiannually at a fixed rate. If inflation/deflation occurs, the interest payment
increases/decreases. However, when a TIPS matures, the investor is paid the inflation-adjusted
principal or original principal, whichever is greater. TIPS are currently being offered either
annually (30-year) or biannually (5-year and 10-year).19
Treasury Floating Rate Notes (FRNs)
Treasury began issuing Floating Rate Notes (FRNs) in January 2014. FRNs are sold in increments
of $100, and have a 2-year maturity period. The interest rate on FRNs is tied to the discount rate
for 13-week Treasury bills. This relationship protects investors from the effects of a rise in
interest rates, in exchange for offerings at lower yields than fixed-rate debt instruments with
equivalent maturity periods. Auctions for FRNs take place at the end of each month.20
Nonmarketable Securities
Nonmarketable debt is composed of approximately 2% of publicly held debt and nearly all
intragovernmental debt. Publicly held debt that is nonmarketable is primarily the state and local
government series and savings bonds.21 Intragovernmental debt is largely composed of debt owed

17 Initial offerings of 10-year notes are currently auctioned in February, May, August and November. Each initial offer
is followed by two reopenings of the same issue in January, March, April, June, July, September, October, and
December. In a security reopening, the U.S. Treasury issues additional amounts of a previously issued security. The
reopened security has the same maturity date and interest payment date as the original security, but has a different issue
date and usually a different price. U.S. Department of the Treasury, Treasury Notes, available at
http://www.treasurydirect.gov/instit/marketables/tnotes/tnotes.htm.
18 Initial offerings of 30-year bonds are currently auctioned in February, May, August, and November. Each initial offer
is followed by two reopenings in the two months following the initial auction. U.S. Department of the Treasury,
Treasury Bonds, available at http://www.treasurydirect.gov/instit/marketables/tbonds/tbonds.htm.
19 U.S. Department of the Treasury, Treasury Inflation-Protected Securities, available at http://www.treasurydirect.gov/
instit/marketables/tips/tips.htm.
20 U.S. Department of the Treasury, Floating Rate Notes (FRNs) In Depth, available at https://www.treasurydirect.gov/
indiv/research/indepth/frns/res_frn.htm.
21 U.S. Department of the Treasury, Bureau of the Fiscal Service, Monthly Statement of Public Debt, April 2022, Tables
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by Treasury to the Social Security, Civil Service Retirement and Disability, Military Retirement,
and Medicare trust funds.22
The main purpose of publicly held nonmarketable debt is to protect the bearers from market risk.
The state and local government series was created in 1972 to restrict state and local governments
from earning arbitrage profits by investing any tax-exempt bond proceeds in investments that
may generate higher yields, thereby risking the returns. This program sells Treasury securities to
state and local governments to help them comply with this requirement. Savings bonds provide a
means for the small investor to participate in government financing. Savings bonds have been
sold continuously since 1935 when they were introduced to encourage broad public participation
in government financing by making federal bonds available in small denominations.23
U.S. government trust funds, which compose intragovernmental debt, contain revenues
designated by law for a specific purpose. When revenues in the trust funds exceed benefit
payments, the unspent monies must remain in the trust fund for future use. However, this excess
cash is transferred to the Treasury’s General Fund and is used to finance other activities which
fall outside the specific purpose of the trust fund. In exchange, the trust fund is issued a Treasury
“special issue” security to be redeemed at face value at any time in the future when the funds are
needed.24 Special issue securities are available only to trust funds and are designated as
nonmarketable, earning interest on a semi-annual basis. The interest rate is determined by
formula, based on the average yield of certain marketable securities.25 Securities of this type
protect the trust fund investments from market fluctuations.
Role of Federal Reserve and Primary Dealers
The Federal Reserve serves as Treasury’s fiscal agent. In this role, it is responsible for the
primary dealer relationships which are used not only for Treasury auctions but other open market
operations to conduct monetary policy. In addition, the Federal Reserve plays an important role in
the operational aspects of the auction process and payments mechanism. The Federal Reserve is
not responsible for making debt issuance decisions—this responsibility rests solely within
Treasury’s ODM to ensure the independence of the two institutions.
In addition, the Fed is a holder of Treasury securities. It is involved in the purchase and resale of
these securities to the secondary market through its open market operations. These operations
help keep the federal funds rate close to a target rate that is set by the Federal Open Market
Committee. Its holdings of Treasury securities amounted to nearly $5.8 trillion as of May 2022.26
Any profits earned by the Fed through the sale of Treasury securities and other activities are

I, available at https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds042022.pdf.
22 U.S. Department of the Treasury, Bureau of the Fiscal Service, Monthly Treasury Statement, July 2016, Table 6 –
Schedule D, available at https://fiscal.treasury.gov/files/reports-statements/mts/mts0422.pdf.
23 Such offerings of Treasury securities dated back to 1776. Between 1776 and 1935, these securities were marketable
and subjected the investor to market fluctuation. Particularly during World War I, small investors incurred significant
losses if they were forced to sell their bonds prior to maturity.
24 The trust funds now hold only special issues, but they have held public issues in the past.
25 The specifications for securities issued to each type of trust fund are listed in separate places in the U.S. Code.
Specifications for the Social Security Trust Fund can be found in 42 USC §401. Specifications for the Civil Service
Retirement and Disability Fund can be found in 5 USC §8348.
26 Federal Reserve, St. Louis Branch, U.S. Treasury securities held by the Federal Reserve: All Maturities, available at
https://research.stlouisfed.org/fred2/series/TREAST. Currency, not Treasury securities, is the Fed’s primary liability.
Treasury securities are assets to the Fed.
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remitted to Treasury and recorded as revenues in the federal budget.27 The Federal Reserve banks
also act as fiscal agents and depositories for Treasury accounts by accepting deposits of federal
taxes and other federal agency receipts and processing checks and electronic payments drawn on
the account.
The Fed’s monetary policy actions can affect interest rates on Treasury securities in the short run.
The Fed conducts its monetary policy by setting a federal funds rate, the price at which banks buy
and sell reserves on an overnight basis, based on the supply and demand for bank reserves.
Monetary actions by the Fed generally affect short-term nominal interest rates. If the Fed lowers
the federal funds rate, resulting in a lower short-term interest rate, long-term interest rates are
likely to fall also, though they may not fall as much or as quickly.28
Primary dealers are securities brokers and dealers who are registered to operate in the government
securities market and have a trading relationship with the Federal Reserve Bank of New York.29
Primary dealers are the largest purchasers of Treasury securities sold to the public at auction.30 In
many cases, auction purchases by primary dealers are later sold on the secondary or “when-
issued” markets (see discussion in the next section).
In addition to their role in the auction process, the primary dealers also work closely with the Fed
to execute its monetary policy. These primary dealers are large financial institutions who the Fed
relies on to act as intermediaries through which Treasury securities are bought and sold and then
resold on the secondary market to increase or decrease the money supply. They are expected to
maintain trading relationships with the Fed’s trading desk and provide the trading desk with
market information and analysis that may be useful to the Fed in the formulation and
implementation of monetary policy. The primary dealers also use this system to help them meet
their liquidity needs by swapping securities with the Fed on an overnight basis. This type of
securities lending has no effect on general interest rates or the money supply since it does not
involve cash, but can affect the liquidity premium of the securities traded.
Other Purchasers of Treasury Securities
Along with the primary dealers and the Fed, individual investors, other dealers and brokers,
private pension and retirement funds, insurance companies, investment funds, and foreign
investors (private citizens and government entities) also purchase Treasury securities through the
auction process and on the secondary market. Treasury releases a variety of data on purchasers of
Treasury securities following each auction. The data are arranged into two categories, bidder
category data and investor class data. The bidder category data show purchases by primary

27 For more information on the Fed’s activities, see CRS Report R46411, The Federal Reserve’s Response to COVID-
19: Policy Issues, by Marc Labonte.
28 The federal funds rate is linked to the interest rates that banks and other financial institutions charge for loans – or the
provision of credit. Thus, while the Fed may directly influence only a very short-term interest rate, this rate influences
other longer-term rates. However, this relationship is far from being on a one-to-one basis since the longer-term market
rates are influenced not only by what the Fed is doing today, but what it is expected to do in the future and what
inflation is expected to be in the future. For more information, see CRS Report RL30354, Monetary Policy and the
Federal Reserve: Current Policy and Conditions, by Marc Labonte.
29 A list of current primary dealers can be found at http://www.newyorkfed.org/markets/pridealers_listing.html.
30 Purchases by primary dealers can be found at http://www.treasurydirect.gov/instit/annceresult/auctdata/
auctdata_stat.htm.
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dealers, direct bidders, indirect bidders, and noncompetitive bidders by bill type. The investor
class data describes the type of individual or institution bidding for the bill.31
Limitations exist on the data available for treasury security purchases. For example, ownership of
a marketable security can change until it matures, meaning that the data (which lists ownership at
the time of the auction) may not reflect the updated ownership composition. This is particularly
true of primary dealers who purchase large amounts of securities and then resell them on the
secondary market.
Secondary and Repurchase Markets
Participants in the secondary market play an indirect role in determining the price of Treasury
securities. Once an auction is announced by Treasury, dealers and market participants start trading
securities on a “when-issued” basis, meaning that once a security is purchased and issued, it will
be immediately resold to the secondary market purchaser. Because trading starts in the secondary
market before the actual auction takes place, “when-issued” market participants effectively
determine the yield or discount rate of Treasury securities based on what they are willing to pay.32
Transactions of Treasury securities between investors and companies or dealers on the repurchase
(repo) market play a role in the effective functioning of the credit markets. In the repo market,
transactions take place between two parties who exchange Treasury securities, often on a very
short-term basis, for cash. The company or dealer pays the investor an agreed upon rate of interest
for use of the funds with the expectation that the Treasury security will be repurchased at the
mutually agreed upon future date. This process provides the company or dealer with the liquidity
needed to meet immediate obligations.
The inability or unwillingness of some investors to return Treasury securities during the recession
of 2007-2009 led to volatility in the repo market that affected market liquidity. In the fall of 2008,
failures in this market spiked to nearly $2.7 trillion, half of the market’s total value, due to the
general market panic caused by the bankruptcy of Lehman Brothers. These settlement fails were
the highest ever recorded. Treasury took the unprecedented response of reopening four securities
in October 2008 to renew market functioning.33 In addition, the Treasury Market Practice Group,
a private sector group sponsored by the Federal Reserve Bank of New York, suggested new
guidelines to lower the level of future failures. Their recommendations resulted in the
implementation of a three percentage point fee on failed repo transactions. Activity in the
secondary and repurchase markets increased as the economy improved.34

31 Auction results are available at http://www.treasurysecurities.gov/RI/OFGateway and http://www.treas.gov/offices/
domestic-finance/debt-management/investor_class_auction.shtml. For an analysis of bidder category and investor class
data, see Fleming, Michael J., Who Buys Treasury Securities at Auction?, FRBNY Current Issues in Economics and
Finance, January 2007.
32 Garbade, Kenneth D. and Jeffrey F. Ingber, The Treasury Auction Process: Objectives, Structure, and Recent
Adaptations, FRBNY Current Issues in Economics and Finance, February 2005, p. 2.
33 Data on Treasury fails back to July 1990 are available on the FRBNY’s website at http://www.newyorkfed.org/
markets/pridealers_failsdata.html. Settlement fails are reported on a cumulative basis. For example, if a dealer fails to
deliver $50 million in securities on the agreed upon date, but makes the delivery one day late, the fail is recorded at $50
million. However, if the $50 million is delivered 4 days late, the fail is valued at $200 million ($50m x 4). For more
information, see Fleming, Michael J. and Kenneth D. Garbade, Explaining Settlement Fails, FRBNY Current Issues in
Economics and Finance, September 2005.
34 James Clark and Tom Katzenbach, “Examining Changes in the Treasury Repo Market after the Financial Crisis,”
Department of Treasury, Treasury Notes, August 12, 2016.
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Managing Federal Financial Flows
The Treasury Secretary manages revenue, works to improve public credit, and provides for on-
time revenue collection and payment of debts.35 If federal government finances are not well
managed, financial stability and economic growth could be at risk. Throughout the year, the
balance held by Treasury can fluctuate significantly as a result of higher or lower revenue
collections or issuance of more or less debt during certain periods. As a result, Treasury must
ensure that adequate funds are available, either via revenue streams or borrowing, to finance
obligations. In order to finance the government’s obligations while minimizing borrowing costs,
Treasury must accurately project what cash requirements will be needed on a daily basis to cover
government payments especially given these variations.36
The total amount of debt issued over the fiscal year depends in large part on the decisions made
by Congress and the priorities it chooses in its annual budget and appropriations process.
Recently, Treasury has issued increasing amounts of debt as a result of the government response
to the most recent economic downturn, along with other budgetary initiatives. Over the longer
term, these priorities could change as the economy recovers and decisions on how to finance the
promises to retirees for healthcare and other benefits may increase the demands on Treasury’s
debt issuance. Treasury’s financing needs generally follow a predictable seasonal pattern in
response to changes in the level of public debt. Growth in public debt is typically lowest in April,
due to the filing of personal income tax returns paid during that month, and highest in September,
as a result of the need to meet obligations due at the end of the fiscal year.
In addition to funding the needs of the government, Treasury manages the accounts of
government agencies through the Bureau of the Fiscal Service. Loans are provided to
Departments or Agencies in order to meet obligations, such as payments owed to eligible
beneficiaries of social service programs. FMS disburses payments to individuals and businesses,
collects federal revenue, and issues government-wide financial reports.
How Much Debt is Outstanding?
Gross federal debt is composed of debt held by the public and intragovernmental debt. Debt held
by the public, issued through the Bureau of the Fiscal Service, is the total amount the federal
government has borrowed from the public and remains outstanding. This measure is generally
considered to be the most relevant in macro-economic terms because it is the amount of debt sold
in credit markets. Intragovernmental debt is the amount owed by the federal government to other
federal agencies, primarily in the Social Security, Medicare, and Civil Service Retirement and
Disability trust funds, to be paid by Treasury.37
The Bureau of the Fiscal Service provides various breakdowns of debt figures. The most up-to-
date data on federal debt can be found on the “Debt to the Penny” section of the Bureau’s
Treasury Direct website.38 The Daily Treasury Statement (DTS) and Monthly Treasury Statement

35 U.S. Department of the Treasury, available at http://www.treasury.gov/about/role-of-treasury/Pages/default.aspx.
36 U.S. Department of the Treasury, Treasury: Strategic Plan, 2022-2026, available at https://home.treasury.gov/
system/files/266/TreasuryStrategicPlan-FY2022-2026.pdf.
37 For additional analysis of federal debt levels, see CRS Report R44383, Deficits, Debt, and the Economy: An
Introduction, by Grant A. Driessen.
38 See http://www.treasurydirect.gov/. Debt information typically lags the current business day by one to two business
days.
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(MTS) provide greater detail on the composition of federal debt, including the operating cash
balance, the types of debt sold, the amount of debt subject to the debt limit, and federal tax
deposits.39 The Monthly Statement of the Public Debt (MSPD) includes figures from the DTS as
well as more detailed information on the types of Treasury securities outstanding.40 The Office of
International Affairs provides figures on the amount of debt held by foreigners through the
Treasury International Capital System (TIC).41 The TIC data reflect estimates of who holds
Treasury securities at a given period of time, which may be different from who purchased these
securities at auction.
Figure 1 shows changes in debt levels as a percentage of GDP from 1940 to 2021. Although
nominal debt levels have steadily risen in the postwar period, debt measured as a percentage of
GDP declined precipitously for several decades following its peak at 118% in 1946 until it
reached 32% by 1981. Real debt levels have subsequently undergone significant increases in the
past several decades. At the end of FY2021, total debt was 127% of GDP, the highest recorded
total dating back to FY1940. Debt held by the public equaled 100% of GDP at the end of
FY2021, its highest level since FY1947. Both total federal debt and debt held by the public were
roughly 20% of GDP higher at the end of FY2021 than they were at the end of FY2019, the last
year before the COVID-19 pandemic.

39 Current issues of the DTS and MTS, respectively, can be found at http://fms.treas.gov/dts/index.html and
http://fms.treas.gov/mts/index.html. For more information on the DTS, see CRS Video WVB00472, A Walkthrough of
the Daily Treasury Statement, by D. Andrew Austin.
40 The current issue of the MSPD can be found at http://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm.
41 Data on major foreign holders of Treasury securities by country is available at http://www.treas.gov/tic/
ticsec2.shtml#ussecs.
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Figure 1. Total Federal Debt and Debt Held by the Public as a Percentage of GDP,
FY1940-FY2021

Source: Office of Management and Budget, FY2023 Historical Tables, Table 7.1. Figure created by CRS.
Notes: Values from the end of each fiscal year.
Levels of federal debt change on a daily basis. On May 13, 2022, for example, gross federal debt
totaled $30.343 trillion, intragovernmental debt totaled $6.564 trillion, and debt held by the
public totaled $23.819 trillion. By the next business day, May 16, 2022, gross federal debt rose to
$30.446 trillion, as intragovernmental debt rose to $6.572 trillion and debt held by the public rose
to $23.874 trillion.42
Treasury also estimates who owns federal securities. Because marketable Treasury securities can
be and are often sold on the secondary market, ownership will change over time. As of September
2021, the latest period for which full estimates are available, gross debt totaled $28.4 trillion,
including $11.6 trillion in the Federal Reserve and Intragovernmental Holdings. U.S. savings
bonds accounted for $0.1 trillion in federal debt, and foreign and international holdings accounted
for $7.6 trillion. The remainder of the debt was held in depository institutions (i.e., commercial
banks), pension funds, insurance companies, mutual funds, state and local governments, and other
investors (i.e., individuals and corporations).43

42 Bureau of the Fiscal Service, “DTS Archive,” available at https://fms.treas.gov/fmsweb/DTSFilesArchiveAction.do.
43 U.S. Department of the Treasury, Bureau of the Fiscal Service, Treasury Bulletin, March 2022, Table OFS-2,
available at https://www.fiscal.treasury.gov/fsreports/rpt/treasBulletin/current.htm. For more information about foreign
ownership of Treasury securities, see CRS Report RS22331, Foreign Holdings of Federal Debt, by Marc Labonte and
Jared C. Nagel.
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Factors Affecting Supply and Demand for Treasury
Securities
Investors examine several key factors when deciding whether they should purchase Treasury
securities. As with all types of investments, price, expected return, and risk play a role in this
process. Treasury securities provide a known stream of income and offer greater liquidity than
other types of fixed-income securities. Prices are determined by investors who place a value on
Treasury securities based on the characteristics of safety and liquidity afforded by this investment
option.44 Because they are also backed by the full faith and credit of the United States, they are
often seen as one of the safest investments available, though investors are not totally immune
from losses. The behavior of the market can lead to price changes, changes in interest rates, or
inflation, which does create some investment risk. Despite the current economic conditions and
financial market volatility, Treasury securities have remained attractive to investors.
Yield Curve
The yield curve shows the relationship between the interest rate (cost of borrowing) and the
maturity of debt (i.e., U.S. Treasury securities) at a given time. In other words, the yield
represents the rate of return an investor would earn if a security was held to maturity. The yield
curve typically changes on a daily basis as interest rates move. Generally, yield curves are upward
sloping (i.e., the longer the maturity, the higher the yield), with diminishing rates of increase over
time. Figure 2 shows the nominal and real yield rates for Treasury securities as of May 17, 2022.
Yield rates increased on both a nominal and real basis with the maturity length of the security,
ranging on a nominal basis from 0.61% for a 1-month security to 3.17% for a 30-year security.

44 Dupont, Dominique and Brian Sack, The Treasury Securities Market: Overview and Recent Developments, Federal
Reserve Board, Federal Reserve Bulletin, December 1999, pp. 792-793, available at http://www.federalreserve.gov/
pubs/bulletin/1999/1299lead.pdf.
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Figure 2. Nominal and Real Yield Rates of Selected Treasury Securities
As of May 17, 2022

Source: U.S. Department of the Treasury, Historic Yield Data. Available at https://www.treasury.gov/resource-
center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx. Figure created by CRS.
Notes: Real yield data not available for maturities of lengths shorter than 5 years. Horizontal axis not to scale.
Two opposing forces affect the slope and shape of the yield curve. First, investors must be
compensated for choosing to invest now even though they may be able to achieve higher interest
rates if they invested at a future point in time. This pushes interest rates up. Opposing this
increase in interest rates is the fact that the longer the period to maturity, the greater the likelihood
that interest rates will fall. This increases the risk to the lender (i.e., Treasury), as they could save
on interest costs if they decided to wait before borrowing money. Generally speaking, the first
effect will outweigh the second, leading to an upward sloping yield curve. An upward sloping
yield curve also illustrates expectations for future economic growth and rising short-term interest
rates. A downward-sloping curve implies that investors expect short-term interest rates to rise
above long-term rates.45 These yield curves have frequently occurred before recessions.46
Yields can change for the same maturities from auction to auction and can vary on a daily
(business day) basis. Treasury’s Office of Debt Management generates the official daily yield

45 Federal Reserve Bank of San Francisco, What is a yield curve, and how do you read them? How has the yield curve
moved over the past 25 years?, July 2004, available at http://www.frbsf.org/education/activities/drecon/
answerxml.cfm?selectedurl=/2004/0407.html.
46 For more information, see CRS Report RS22371, The Pattern of Interest Rates: Does It Signal an Impending
Recession?, by Marc Labonte and Gail E. Makinen. Out of print. Available to congressional clients upon request.
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curves to calculate a rate of constant maturity on Treasury securities in order to provide a
meaningful measure of the yield on a security with a 10-year maturity, for example, even if no
outstanding security has exactly 10 years remaining to maturity.47 All securities with the same
length to maturity must have the same yield, even if they were originally issued with different
maturities or coupon rates. Yields are equalized through price changes.
Figure 3 shows the Treasury constant maturity rates for selected maturities since 1962. Rates on
securities with different maturities generally track each other. This is because securities with
similar maturity periods tend to have similar rates because they offer fixed interest payments over
essentially the same period of time. Given that securities with longer maturities tend to reflect
expectations about the future path of the interest rates of short-term securities, short-term rates
generally provide a picture of the path of their longer-term counterparts. Therefore, over history,
movements in constant maturity rates have generally tracked each other, regardless of length of
maturity.48
Figure 3. Selected Treasury Nominal Constant Maturity Rates
Annual rates, 1962-2022

Source: Federal Reserve Board, Federal Reserve Statistical Release, H.15 Selected Interest Rates, U.S.
Government Securities – Annual Series, available at http://www.federalreserve.gov/releases/h15/data.htm.

47 For information on the methodology used to calculate the constant maturity yields, see http://www.treas.gov/offices/
domestic-finance/debt-management/interest-rate/yield.shtml.
48 Dupont, Dominique and Brian Sack, The Treasury Securities Market: Overview and Recent Developments, Federal
Reserve Board, Federal Reserve Bulletin, December 1999, pp. 793-794, available at http://www.federalreserve.gov/
pubs/bulletin/1999/1299lead.pdf.
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Notes: Treasury began issuing 30-year Treasury securities in February 1977 and did not issue these securities
between February 18, 2002, and February 9, 2006. The Office of Debt Management also calculates constant
maturity rates for securities with other maturity periods in addition to calculating rates for inflation-indexed
securities (i.e., TIPS).
As Figure 3 shows, the maturity rates of both long-term and short-term Treasury securities have
declined significantly after peaking in the early 1980s. Increases in the maturity rates of short-
term securities from 2004 through 2007 were followed by sharp declines in rates during and after
the economic recession of 2007-2009. Nominal rates of all Treasury securities declined from
2010 to 2019, with a much more pronounced decline among securities with shorter maturity
lengths. The COVID-19 crisis again led to a swift decline in interest rates, though rates of all
securities picked up considerably in 2021 and 2022. The spread between the 30-year and 1-year
security interest rates has been 1.18% from January to May 2022, roughly in line with the 1.28%
average spread since the creation of the 30-year security in 1977. In a recent statement, the
Federal Open Market Committee expressed an expectation that inflation will return to levels
closer to their 2% long-term target, and raised the target range for the federal funds rate in
keeping with that objective.49
Determining Maturity Mix
Newly issued Treasury securities, sold to finance the operations of the federal government, are
offered at a mix of maturities in order to satisfy the provisions of the regular and predictable debt
management strategy and to minimize interest payments over time. The profile of securities is
also important due to its influence on liquidity. In addition, Treasury must make sure that it has
adequate cash balances available to pay federal obligations. Balancing all of these objectives
leads to a strategy which offers a mix of short- and long-term securities.
Longer-term securities generally command higher interest rates compared to shorter-term
securities because investors demand greater compensation for incurring risk over a longer period
of time. Generally, a strong economy will be accompanied by higher interest rates. If Treasury
issues long-term debt during this time, they are committing to paying higher interest rates for a
longer period and may decide to purchase short-term securities. However, this leads to
uncertainties over the longer term, since the interest rate will likely change. During periods of
economic downturn and low interest rates, Treasury may decide to finance at longer maturities to
take advantage of lower borrowing costs. This, however, may lead to more volatile and uncertain
yearly interest payments because Treasury has to enter the market more often. Figure 4 shows the
average length of marketable interest-bearing public debt securities held by private investors
between 1974 and 2021, as of the end of each fiscal year.

49 Federal Reserve Bank, Board of Governors of the Federal Reserve System Press Release, May 2022, available at
https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504a.htm.
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Figure 4. Average Maturity of Marketable Interest-Bearing Public Debt Securities
Held by Private Investors, 1974-2021
Maturity period in months

Source: Council of Economic Advisors, Economic Report of the President, March 2013, Table B-88, and
Department of Treasury, Treasury Bulletin, March 2022, Table FD-5.
Since 1974, the average maturity period of Treasury securities reached its minimum point in
FY1976 at 31 months and its peak in FY2000 at 75 months. In the mid-1970s, before the
initiation of the regular and predictable debt management strategy, the average maturity of
Treasury securities declined due to the rapid increase in the deficit during FY1975. To meet the
unexpected financing needs, numerous debt offerings took place. However, Treasury officials
were generally reluctant to offer long-term securities because they were unsure of investor
demand. In contrast, during the surplus years of the late 1990s and the resulting decline in federal
debt levels, Treasury did not have immediate financing needs and did not auction new securities
as older ones matured. This effectively increased average maturity since greater numbers of long-
term bonds remained outstanding.
Given the nature of current borrowing requirements, coupled with expected future demands on
borrowing needs due to long-term obligations related to Medicare and Social Security, Treasury’s
Borrowing Advisory Committee recommended that Treasury increase the size of issues across the
maturity spectrum to allow the Treasury to meet its financing needs over the short to intermediate
term and reduce the uncertainty surrounding interest rates over the long term.50 Effectively, this
should reduce risk and ensure adequate financing over the long term, while increasing average

50 Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry
and Financial Markets Association, April 29, 2009, available at http://www.treas.gov/press/releases/tg111.htm.
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maturity. The average maturity period of Treasury securities has increased since the end of the
Great Recession, rising from an average length of 49 months in 2009 to 66 months in 2021.
Budgetary Impacts
Legislative activity can affect Treasury’s ability to issue debt and can impact the budget process.
The statutory limit on the debt can constrain debt operations, and, in the past, has hampered
traditional practices when the limit was approached. The accounting of asset purchases in the
federal budget has created differences between how much debt Treasury has to borrow to
purchase assets and how much the same purchases will impact the budget deficit. If budget
deficits continue to rise, thereby requiring devotion of more resources to paying interest on the
debt, fewer funds are available to spend on other federal programs, all else equal.
Some economists have expressed concerns that persistent deficits could drive up interest rates,
making it more expensive for the government, businesses, and consumers to borrow money. The
government cannot add infinitely to the national debt without facing market consequences or
hindering future ability to borrow.
Constraints of the Debt Limit
Congress sets a statutory limit on federal debt levels in an effort to assert its constitutional
prerogatives to control spending and impose a form of fiscal accountability. At times, the debt
limit has restricted the Treasury’s ability to manage the federal government’s finances. Standard
methods of financing federal activities or meeting government obligations can be hobbled when
federal debt nears its legal limit. If the limit prevents the Treasury from issuing new debt to
manage short-term cash flows or to finance an annual budget deficit, the government may be
unable to obtain the cash it needs. In recent years, when federal debt levels approached the
statutory debt limit, Congress and the Treasury were compelled to intervene. Such actions to stay
under the debt limit included the authorization of a “debt issuance suspension period” and the
implementation of “extraordinary measures” by the Treasury Secretary, and suspension of the
statutory debt limit by Congress.51 Because the law requires that the government’s legal
obligations be paid, the debt limit may prevent it from issuing the debt that would allow it to do
so. While the debt limit has never caused the federal government to default on its obligations, at
times it has added uncertainty to Treasury operations.52
Interest and the Debt
Interest paid on the federal debt increases the overall cost of borrowing. As discussed earlier,
interest costs can be affected by various conditions, including legislative activity and the
economy, as well as actions taken by the Treasury and the Fed. The level of budget deficits and
federal debt can also affect the interest rates on Treasury securities. If interest rates are low,
interest payments on Treasury securities may also be low, thereby making debt less costly.
However, increased borrowing will increase the supply of Treasury securities, which generally
leads to higher interest rates and future net interest payments. Projections of increasing real debt
in the long term are therefore likely to lead to increasing real interest payments.

51 For more information on recent debt limit activity, see CRS Report R43389, The Debt Limit Since 2011, by D.
Andrew Austin; CRS Insight IN11829, Debt Limit Suspensions, by D. Andrew Austin.
52 For more information, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew
Austin.
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Conclusion
Part of Treasury’s mission is to secure America’s economic and financial future. In part, this is
achieved by maintaining a regular and predictable debt management strategy as well as ensuring
global trust and confidence in U.S. currency. However, Treasury’s actions are affected by
Congress, the Fed, and different types of investors, as well as economic conditions. As long as the
United States continues to issue Treasury securities to finance government operations, the actions
of the Treasury will continue to play a key role in maintaining stability in the financial and credit
markets and the U.S. economy.

Author Information

Grant A. Driessen

Specialist in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
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