Visualizing Treasury Issuance Strategy

TL;DR

This paper presents simple metrics to visualize and analyze the tradeoffs in Treasury issuance strategies, helping to identify optimal issuance tenors and understand historical shifts in cost and risk.

Contribution

It introduces novel cost and risk proxy metrics that map issuance fractions to long-term portfolio implications, enhancing analysis of Treasury issuance strategies.

Findings

Metrics effectively visualize issuance tradeoffs.

Historical analysis reveals shifts in Treasury risk and cost.

Optimal issuance tenors can be identified using the proposed metrics.

Abstract

We introduce simple cost and risk proxy metrics that can be attached to Treasury issuance strategy to complement analysis of the resulting portfolio weighted-average maturity (WAM). These metrics are based on mapping issuance fractions to their long-term, asymptotic portfolio implications for cost and risk under mechanical debt-rolling dynamics. The resulting mapping enables one to visualize tradeoffs involved in contemplated issuance reallocation, and identify an efficient frontier and optimal tenor. Historical Treasury issuance strategy is analyzed empirically using these cost and risk metrics to illustrate how changes in issuance needs and strategy have translated into structural shifts in the cost and risk stance of Treasury issuance.