Skip to Highlights

This report is part of GAO's requirement, under the Emergency Economic Stabilization Act of 2008, to monitor the Department of the Treasury's (Treasury) implementation of the Troubled Asset Relief Program and submit special reports as warranted from oversight findings. It evaluates Treasury's borrowing actions since the start of the crisis, and how Treasury communicates with market participants in the context of the growing debt portfolio and the medium- and long-term fiscal outlook. GAO analyzed market data; interviewed Treasury, the Federal Reserve Bank of New York, and market experts; and surveyed major domestic holders of Treasury securities.

The economic recession and financial-market crisis, and the federal government's response to both, have significantly increased the amount of federal debt. While the composition of Treasury's debt portfolio changed in response to this increase, Treasury has taken a number of steps in the past year to return the composition of the debt portfolio to pre-market crisis structure. One action Treasury has undertaken has been to reduce its reliance on cash management bills (CMB). While CMBs provided Treasury with needed borrowing flexibility immediately following the financial market crisis in 2008, Treasury paid a premium for its sustained use of CMBs in 2008 and 2009. In recent months, Treasury also has begun to stabilize shorter-term bill issuance and increase issuance of longer-term coupons. Given the medium- and long-term fiscal outlook, Treasury will continue to be presented with the challenge of raising significant amounts of cash at the lowest costs over time. This makes evaluating the demand for Treasury securities increasingly important. Sufficient information from market participants on their demand for Treasury securities, including the type of information that GAO received from its survey of the largest domestic holders of Treasury securities, will be critical as Treasury moves forward to meet these challenges. In GAO's survey, investors reported increased demand for Treasury Inflation Protected Securities (TIPS) and suggested ways for Treasury to further improve TIPS liquidity and thereby lower borrowing costs. Treasury receives input from market participants through a variety of formal and informal channels, but overall satisfaction with these communication channels varies by type of market participant. Market participants suggested to GAO a number of changes including increasing investor diversification on the Treasury Borrowing Advisory Committee (TBAC) and regular collection of information from end-investors. Primary dealers, who are satisfied with their communication, raised concerns about the recent increase in direct bidding and its effect on Treasury auctions.

Skip to Recommendations


Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Treasury 1. To help gauge investor demand in the context of projected sustained increases in federal debt, the Secretary of the Treasury should continually review methods for collecting market information and consider conducting a systematic and periodic survey of the largest holders of Treasury securities in all sectors.
Closed - Implemented
On January 12, 2016 Treasury published a survey requesting industry feedback about the government bond market. Consistent with our 2010 recommendation, Treasury officials stared that there is a broad consensus within Treasury that the government needs more timely access to data, and told us that the January 2016 request for information was open to all investors.
Department of the Treasury 2. To help gauge investor demand in the context of projected sustained increases in federal debt, the Secretary of the Treasury should continually review methods for collecting market information and consider increasing the number of representatives on TBAC and ensuring diverse representation by including members that represent end-investors .
Closed - Not Implemented
We reviewed Treasury's debt management policy decisions announced through September 2014, through its quarterly statements, and confirmed no discussion or plans to discuss the representatives of the Treasury Borrowing Advisory Committee. While Treasury agreed with our recommendations, Treasury had not increased TBAC membership, has not filled empty seats wtih non bank end-users, and has not increased diversity in membership in other ways. Treasury has announced the possibility of TBAC reaching out to the academic community for specific matters.
Department of the Treasury 3. The Secretary of the Treasury should continue to reduce the amount and term to maturity of CMBs, when appropriate.
Closed - Implemented
Beginning in May 2011, Treasury reduced the amount and term to maturity of CM bills issued as it suspended the Supplementary Finance Program due to debt limit negotiations. The amount of CM bills issued in 2011 was consistent with the amount issued before the financial crisis and economic downturn; however, the weighted average term to maturity is longer.
Department of the Treasury 4. The Secretary of the Treasury should consider increasing the number of TIPS auctions and distributing them more evenly throughout the year in order to improve participation in TIPS auctions.
Closed - Implemented
At Treasury's August 2009 refunding, Treasury announced that market participants could expect TIPS issuance to gradually increase in FY10 and Treasury made good on this announcement. At the November 2009 refunding, Treasury reaffirmed this commitment and also announced that they would consider making further changes to the TIPS program to meet market needs for more frequent TIPS auctions.
Department of the Treasury 5. The Secretary of the Treasury should study whether the recent increase in direct bidding at Treasury auctions has changed Treasury's overall cosborrowing. As part of this study, Treasury should consider options to promote transparency surrounding direct bidding that would not discourage participation or affect Treasury's goal of fostering competition at auctions, including releasing its data on Investor Class Aution Allotments more frequently.
Closed - Implemented
Beginning in May 2010, Treasury increased the publication of investor class data for coupon auctions from once a month to twice a month.

Full Report

GAO Contacts