How Treasury Issues Debt
January 29, 2024
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
Grant A. Driessen
borrowing needs at the lowest cost over time. To accomplish this Treasury adheres to three
Acting Section Research
principles: (1) to issue debt in a regular and predictable pattern, (2) to provide transparency in the
Manager
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 “Role of the Treasury,” U.S. Department of the Treasury, https://home.treasury.gov/about/general-information/role-
of-the-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 the 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 be a lender of last resort.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 Treasury, paying U.S.
government checks drawn on the Treasury, and issuing and redeeming savings bonds and other
government securities.6

2 U.S. Department of the Treasury, Office of Domestic Finance, Overview of Treasury’s Office of Debt Management,
https://home.treasury.gov/system/files/276/Debt-Management-Overview.pdf.
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. U.S. Department of the Treasury, Bureau of
the Fiscal Service, Treasury Franchise Fund, FY2023 President’s Budget, 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,
https://www.minneapolisfed.org/article/1988/born-of-a-panic-forming-the-fed-system.
6 “History of the Federal Reserve,” Board of Governors of the Federal Reserve System,
(continued...)
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How Treasury Sells Debt
Treasury’s current debt management practices date back to the mid-1970s, when it decided 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. 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 more defined yield curve.8
Auction Process
Auctions are the cornerstone of Treasury’s debt management strategy.9 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 determined via a competitive
bid at auction. The interest coupon rate is the highest yield which does not result in a price greater
than 100% of the principal.10 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 exceeds the value of the security, it is described as purchased at a premium. Thus, the
coupon rate and discount (or premium) jointly determine the yield to maturity.
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
the yield that is acceptable.11 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

https://www.federalreserveeducation.org/about-the-fed/archive-history/. For more information, see CRS 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 Kenneth D. Garbade, “The Emergence of ‘Regular and Predictable’ as a Treasury Debt Management Strategy,”
Federal Reserve Bank of New York Economic Policy Review, vol. 13, no. 1 (March 2007), pp. 54-55,
https://www.newyorkfed.org/research/epr/07v13n1/0703garb.html.
9 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.
10 There are no coupon rates for Treasury bills, as Treasury bills are sold on a discount basis.
11 For bills and TIPS auctions, the bids are offered in terms of a discount rate rather than a yield.
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specified in their auction bids, all securities in an auction are sold for a single price, computed
based on the “stop” yield.12
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.13 If Treasury
borrowing requirements or financing policy decisions change, the types of securities, the length
of maturity periods, and offering amounts could be altered.14
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.15
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
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).16

12 Kenneth D. Garbade and Jeffrey F. Ingber, “The Treasury Auction Process: Objectives, Structure, and Recent
Adaptations,” Federal Reserve Bank of New York Current Issues in Economics and Finance, vol. 11, no. 2 (February
2005), pp. 2-3, https://www.newyorkfed.org/research/current_issues/ci11-2.html.
13 “Treasury Auctions,” U.S. Department of the Treasury, https://home.treasury.gov/services/treasury-auctions.
14 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.
15 “Treasury Bills,” U.S. Department of the Treasury, https://www.treasurydirect.gov/marketable-securities/treasury-
bills/.
16 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. “Treasury Notes,” U.S. Department of the Treasury,
https://www.treasurydirect.gov/marketable-securities/treasury-notes/.
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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.17
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).18
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.19
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.20 Intragovernmental debt is largely composed of debt owed
by Treasury to the Social Security, Civil Service Retirement and Disability, Military Retirement,
and Medicare trust funds.21
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

17 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. “Treasury Bonds,” U.S. Department of
the Treasury, https://www.treasurydirect.gov/marketable-securities/treasury-bonds/.
18 “Treasury Inflation-Protected Securities (TIPS),” U.S. Department of the Treasury,
https://www.treasurydirect.gov/marketable-securities/tips/.
19 “Floating Rate Notes (FRNs),” U.S. Department of the Treasury, https://www.treasurydirect.gov/marketable-
securities/floating-rate-notes/.
20 U.S. Department of the Treasury, Bureau of the Fiscal Service, Monthly Statement of Public Debt, April 2022, Tables
I, https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds042022.pdf.
21 U.S. Department of the Treasury, Bureau of the Fiscal Service, Monthly Treasury Statement, July 2016, Table 6—
Schedule D, https://fiscal.treasury.gov/files/reports-statements/mts/mts0422.pdf.
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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.22
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.23 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.24 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. Its holdings of
Treasury securities amounted to nearly $4.8 trillion as of November 2023.25 Any profits earned by
the Fed through the sale of Treasury securities and other activities are remitted to Treasury and
recorded as revenues in the federal budget.26 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 closely influence short-term 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

22 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.
23 The trust funds now hold only special issues, but they have held public issues in the past.
24 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.
25 Federal Reserve Bank of St. Louis, “U.S. Treasury securities held by the Federal Reserve: All Maturities,”
https://research.stlouisfed.org/fred2/series/TREAST. Currency, not Treasury securities, is the Fed’s primary liability.
Treasury securities are assets to the Fed.
26 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.
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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.27
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.
Primary dealers are the largest purchasers of Treasury securities sold to the public at auction.28 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
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.29
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.

27 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.
28 A list of current primary dealers and their purchases can be found at “Primary Dealers,” Federal Reserve Bank of
New York, https://www.newyorkfed.org/markets/primarydealers.html.
29 Auction results are available at “Recent Auction Results,” U.S. Department of the Treasury, TreasuryDirect,
https://www.treasurydirect.gov/auctions/results/. For an analysis of bidder category and investor class data, see Michael
J. Fleming, “Who Buys Treasury Securities at Auction?” Federal Reserve Bank of New York Current Issues in
Economics and Finance, vol. 13, no. 1 (January 2007), https://www.newyorkfed.org/research/current_issues/ci13-
1.html.
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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.30
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.
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.31 If federal government finances are not well
managed, financial stability and economic growth could be at risk. Throughout the year, the fiscal
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.32
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 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 individual
income tax returns and payment of any unpaid taxes 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

30 Kenneth D. Garbade and Jeffrey F. Ingber, “The Treasury Auction Process: Objectives, Structure, and Recent
Adaptations,” Federal Reserve Bank of New York Current Issues in Economics and Finance, vol. 11, no. 2 (February
2005), p. 2, https://www.newyorkfed.org/research/current_issues/ci11-2.html.
31 “Role of the Treasury,” U.S. Department of the Treasury, http://www.treasury.gov/about/role-of-treasury/Pages/
default.aspx.
32 U.S. Department of the Treasury, Treasury: Strategic Plan, 2022-2026, https://home.treasury.gov/system/files/266/
TreasuryStrategicPlan-FY2022-2026.pdf.
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service programs. BFS 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 macroeconomic 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.33
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.34 The Daily Treasury Statement (DTS) and Monthly Treasury Statement
(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.35 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.36
Figure 1 shows changes in debt levels as a percentage of GDP from 1940 through 2022.
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 FY2022, total debt was 123% of GDP, and debt held by
the public equaled 97% of GDP. The FY2020 debt totals of 128% of GDP for total debt and 100%
of GDP for debt held by the public represented the highest levels for each category since FY1940
and FY1947, respectively. The debt shifts in response to the COVID-19 pandemic and the 2007-
2009 Great Recession represent the largest increases since the end of World War II.

33 For additional analysis of federal debt levels, see CRS Report R44383, Deficits, Debt, and the Economy: An
Introduction, by Grant A. Driessen.
34 See TreasuryDirect, http://www.treasurydirect.gov/. Debt information typically lags the current business day by one
to two business days.
35 Current issues of the DTS and MTS, respectively, can be found at “Daily Treasury Statement,” U.S. Department of
the Treasury, Bureau of the Fiscal Service, https://www.fiscal.treasury.gov/reports-statements/dts/index.html, and
“Monthly Treasury Statement,” U.S. Department of the Treasury, Bureau of the Fiscal Service,
https://www.fiscal.treasury.gov/reports-statements/mts/. For more information on the DTS, see CRS Video
WVB00472, A Walkthrough of the Daily Treasury Statement, by D. Andrew Austin.
36 The current issue of the MSPD can be found at “U.S. Treasury Monthly Statement of the Public Debt (MSPD),” U.S.
Department of the Treasury, https://fiscaldata.treasury.gov/datasets/monthly-statement-public-debt/summary-of-
treasury-securities-outstanding.
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Figure 1. Total Federal Debt and Debt Held by the Public as a Percentage of GDP,
FY1940-FY2022

Source: Office of Management and Budget, FY2024 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 November 22, 2023, for example, gross federal
debt totaled $33.766 trillion, intragovernmental debt totaled $7.046 trillion, and debt held by the
public totaled $26.720 trillion. By the next business day, November 24, 2023, gross federal debt
rose to $33.827 trillion, as intragovernmental debt rose to $7.056 trillion and debt held by the
public rose to $26.771 trillion.37
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 December
2022, the latest period for which full estimates are available, gross debt totaled $31.4 trillion,
including $12.4 trillion in the Federal Reserve and Intragovernmental Holdings. U.S. savings
bonds accounted for $0.2 trillion in federal debt, and foreign and international holdings accounted
for $7.3 trillion. The remainder of the debt was held in depository institutions (i.e., commercial

37 “Daily Treasury Statement (DTS),” U.S. Department of the Treasury, Bureau of the Fiscal Service,
https://fiscaldata.treasury.gov/datasets/daily-treasury-statement/operating-cash-balance.
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banks), pension funds, insurance companies, mutual funds, state and local governments, and other
investors (i.e., individuals and corporations).38
The Office of International Affairs provides figures on the amount of debt held by foreigners
through the Treasury International Capital System (TIC).39 The TIC data reflect estimates of who
holds Treasury securities in a given period, which may be different from who purchased these
securities at auction. As of September 2023, TIC data showed a total of $7.6 trillion in debt held
by foreigners (with governmental and private holdings roughly equivalent), or 29% of all debt
held by the public.40 Japan ($1.1 trillion in total holdings), mainland China ($0.8 trillion), and the
United Kingdom ($0.7 trillion) were the countries with the largest federal debt holdings. The
percentage of publicly held debt owned by foreigners increased from below 10% before the 1970s
to over 50% in 2008, but has gradually declined in recent years. For more information on foreign
federal debt ownership, see CRS Report RS22331, Foreign Holdings of Federal Debt, by Marc
Labonte and Ben Leubsdorf.
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.41 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, with zero default risk, though investors are
not immune from losses from other types of risk. The behavior of the market can lead to price
changes, changes in interest rates, or inflation, which does create some investment risk.
Throughout periods of economic recession 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.

38 U.S. Department of the Treasury, Bureau of the Fiscal Service, Treasury Bulletin, September 2023, Table OFS-2,
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 Ben
Leubsdorf.
39 For data on major foreign holders of Treasury securities by country, see “Securities (B): Portfolio Holdings of U.S.
and Foreign Securities,” U.S. Department of the Treasury, http://www.treas.gov/tic/ticsec2.shtml#ussecs.
40 “Major Foreign Holders of Treasury Securities,” U.S. Department of the Treasury, November 2023,
https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html.
41 Dominique Dupont and Brian Sack, “The Treasury Securities Market: Overview and Recent Developments,” Federal
Reserve Board, Federal Reserve Bulletin (December 1999), pp. 792-793, http://www.federalreserve.gov/pubs/bulletin/
1999/1299lead.pdf.
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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 (or “inverted”) curve implies that investors expect short-term interest
rates to rise above long-term rates.42 Downward-sloping yield curves have frequently, but not
always, occurred before recessions.43
Figure 2 shows the nominal and real yield rates for Treasury securities as of November 24, 2023,
with a slightly downward-sloping nominal yield curve and a relatively flat real yield curve. These
values reflect a flattening of each yield curve in late 2023, and follow a number of shifts in the
Treasury yield curves in recent years, with inversions in 2019 and 2022 and a return to the typical
upward-sloping shape for the yield curves in 2021. Market analysis of the 2023 yield curve
flattening is mixed, highlighting the uncertainty surrounding yield curve shifts and general
economic performance.44

42 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, https://www.frbsf.org/education/publications/doctor-econ/2004/july/yield-
curve/.
43 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.
44 Ivan Illan, “What a Flattening Yield Curve Means for Future Fiscal Fitness,” October 19, 2023, Forbes,
https://www.forbes.com/sites/forbesfinancecouncil/2023/10/19/what-a-flattening-yield-curve-means-for-future-fiscal-
fitness/?sh=604087ce2607; and Davide Barbusica and Carolina Mandl, “US Treasury yield curve shifts could be set-up
for Jackson Hole unwind,” August 25, 2023, Reuters, https://www.reuters.com/markets/us/us-treasury-yield-curve-
shifts-could-be-set-up-jackson-hole-unwind-2023-08-24/.
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Figure 2. Nominal and Real Yield Rates of Selected Treasury Securities
As of November 24, 2023

Source: “Historic Yield Data,” U.S. Department of the Treasury, 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 are derived from TIPS yields and not available for maturities of lengths shorter than 5
years. Horizontal axis not to scale.
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
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.45 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,

45 For information on the methodology used to calculate the constant maturity yields, see “Interest Rate Statistics,” U.S.
Department of the Treasury, http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml.
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movements in constant maturity rates have generally tracked each other, with short-term yields
showing larger day-to-day changes than long-term yields.46
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,” http://www.federalreserve.gov/releases/h15/data.htm.
Notes: 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
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 economic fallout from the COVID-19 pandemic again led to a swift decline in
interest rates, though rates of all securities picked up considerably in 2021 and 2022, with
Treasury rates at the end of 2022 looking roughly similar to values in 2018. The spread between
the 30-year and 1-year security interest rates was 0.3% in 2022, smaller than the 1.3% average
spread since the creation of the 30-year security in 1977. In a recent statement, the Federal Open

46 Dominique Dupont and Brian Sack, “The Treasury Securities Market: Overview and Recent Developments,” Federal
Reserve Board, Federal Reserve Bulletin (December 1999), pp. 793-794, http://www.federalreserve.gov/pubs/bulletin/
1999/1299lead.pdf.
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Market Committee expressed a commitment to lowering inflation to levels closer to their 2%
long-term target, while maintaining the target range for the federal funds rate at 5.25%-5.50%.47
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.48 Navigating among 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 or higher inflation 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, and
involves a degree of uncertainty over future market behavior. Figure 4 shows the average length
of marketable interest-bearing public debt securities held by private investors between 1974 and
2022, as of the end of each fiscal year.

47 Board of Governors of the Federal Reserve System, “Federal Reserve issues FOMC statement, press release, May 4,
2022, https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504a.htm. Changes in the federal funds
rate affect other interest rate levels, and represent one of the Fed’s primary methods of implementing desired changes
in monetary policy.
48 Requirements and guidance for Treasury cash balances can be found in the federal code, including 31 U.S.C. 323.
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Figure 4. Average Maturity of Marketable Interest-Bearing Public Debt Securities
Held by Private Investors, 1974-2022
Maturity period in months

Sources: Council of Economic Advisers, Economic Report of the President, March 2013, Table B-88, and
Department of the Treasury, Treasury Bulletin, 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.49 The average

49 U.S. Department of the Treasury, “Report to the Secretary of the Treasury from the Treasury Borrowing Advisory
Committee of the Securities Industry and Financial Markets Association,” press release, April 29, 2009,
https://home.treasury.gov/news/press-releases/tg111.
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maturity length of Treasury securities has subsequently increased in recent decades, with swift
declines in the maturity period during the Great Recession and COVID-19 pandemic followed by
maturity period increases in subsequent years. The average maturity period of Treasury securities
was 68 months in 2022, the highest reported total since 2001.
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.50 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

50 Relevant research includes Olivier Blanchard, “Public Debt and Low Interest Rates,” American Economic Review,
vol. 109, no. 4 (April 2019), pp. 1197-1229.
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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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.

Author Information

Grant A. Driessen

Acting Section Research Manager

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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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
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Congressional Research Service
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