How do federal budget conditions and other events affect debt management?

The Treasury's debt management goal—to meet the government's financing needs at the lowest cost over time—remains the same regardless of whether the federal budget is in surplus or deficit. However, the Treasury will vary the size and frequency of auctions, as well as the types of debt instruments to be auctioned, according to budget conditions and borrowing needs.

During the period of budget surpluses from 1998 to 2001, the Treasury reduced debt held by the public by issuing less debt than was maturing. Treasury also reduced the number of auctions and suspended or eliminated several types of securities, including the 30-year bond, because issuances of some maturities would otherwise have been small and less liquid. Treasury even bought back some outstanding securities before their maturity date. For more information on debt buybacks, which could also be used in times of deficit, see Debt Management: Buybacks Can Enhance Treasury's Capacity to Manage under Changing Market Conditions.

Treasury responds to increases in borrowing needs by increasing the issuance size of existing securities, increasing the frequency of issuances, and introducing new securities to its auction calendar as necessary. During 2008 and 2009, Treasury had to finance a large increase in federal borrowing in a short amount of time. Treasury increased its issuance of bills—the "shock absorbers" in Treasury's portfolio of debt instruments—which, in turn, changed the composition of Treasury's debt portfolio. BillsTreasury bills are short-term securities that mature in 1 year or less from their issue date. Investors pay less than the bills' par or face value (though Treasury may also issue bills at par), and when bills mature, they receive the par or face value. For example, a $1,000 bill might sell at auction for $980. When the bill matures, the investor receives the face value, in this case $1,000. The difference ($20) equals the interest earned. increased from approximately 20 percent of outstanding marketable debtThe Treasury issues two major types of debt securities to the public: marketable and nonmarketable securities. Marketable securities, which consist of Treasury bills, notes, bonds, TIPS, and floating rate notes, can be resold by whoever owns them. Marketable securities are auctioned at regular intervals during the year. at the end of fiscal year 2007 to nearly 30 percent at the end of fiscal year 2008. Treasury also resumed issuance of some securities, such as the 52-week bill and 7-year note, and increased the frequency of issuance for other securities (such as the 30-year bond). As of September 30, 2016, the amount of outstanding Treasury bills had declined to about 10 percent of total Treasury marketable debt.

Source: GAO analysis of data from the Department of the Treasury, Bureau of the Fiscal Service, Schedules of Federal Debt.

Notes: Data are audited by GAO. See, for example, Financial Audit: Bureau of the Fiscal Service's Fiscal Years 2016 and 2015 Schedules of Federal Debt. Treasury began issuing floating rate notes in January 2014.