Optimizing the maturity structure of U.S. Treasury debt: A model-based framework
The U.S. Treasury doesn’t decide how much money to borrow each year; that depends on the gap between federal spending and revenues. The Treasury does decide how to borrow ？ that is, how much short-term and how much long-term and how much in between. These decisions typically involve a trade-off between minimizing expected costs of borrowing and minimizing fiscal risks. For years, the U.S. Treasury has focused primarily on maintaining a “regular and predictable” pattern of debt, while several other countries rely on analytical frameworks or models to guide their decisions. In a paper commissioned by the Hutchins Center on Fiscal and Monetary Policy at Brookings, six Wall Street economists ？ Terry Belton, Huachen Li, and Srini Ramaswamy of JPMorgan Chase, Kristopher Dawsey and Brian Sack of The D. E. Shaw Group, and David Greenlaw of Morgan Stanley ？ describe a framework to guide Treasury decisions. Their paper ？ “Optimizing the Maturity Structure of U.S. Treasury Debt: A Model-Based Framework” ？ presents a model that can be used to assess the trade-offs between various debt issuance strategies and to explore the sensitivity of those trade-offs to different assumptions.