FAQs: Treasury Rollovers

Effective December 14, 2016

Why is the Desk conducting Treasury rollovers?
The Federal Open Market Committee (FOMC) has directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue rolling over maturing Treasury securities at auction. Rollovers, by keeping the Treasury securities holdings of the System Open Market Account (SOMA) at a sizable level, should help maintain accommodative financial conditions.

How does the Desk manage the SOMA’s maturing Treasury securities?
As directed by the FOMC, the Desk rolls over the SOMA’s maturing Treasury security holdings by replacing maturing holdings with securities issued at Treasury auctions. In accordance with long-standing practice, these rollovers are typically accomplished by placing bids for the SOMA at Treasury auctions equal in par amount to the value of holdings maturing on the issue date of the securities being auctioned, allocated proportionally across those securities by announced offering amount. Bids at Treasury auctions are placed as noncompetitive tenders and are treated as add-ons to announced auction sizes.

As a hypothetical example, if the SOMA had held $1 billion in Treasury note securities that matured on December 15, 2015, the maturing securities would have been exchanged for 3-year, 10-year and 30-year Treasury securities issued at auctions that settled on that same day. The $1 billion would have been allocated across these three securities in proportion to their announced offering amounts, as shown below:

Value of Maturing Securities Security Announced Offer Size Proportional Allocation   SOMA Rollover
$1,000,000,000 3-year $24,000,000,000 41.4%   $413,793,200
  10-year $21,000,000,000 36.2%   $362,068,900
  30-year $13,000,000,000 22.4%   $224,137,900
    $58,000,000,000 100.0%   $1,000,000,000

How does the Desk manage different issue types for rollovers?
When existing SOMA holdings of Treasury notes, bonds, TIPS and FRNs mature and are rolled over, the total value of maturing securities on a given day are typically exchanged proportionally across all Treasury notes, bonds, TIPS and FRNs issued on that day. When existing SOMA holdings of Treasury bills mature and are rolled over, the total value of maturing securities are typically exchanged for Treasury bills.

What are the limits on the Desk’s holdings of any one Treasury issue?
SOMA holdings are currently limited to not more than 70 percent of the total outstanding amount of any one Treasury security.

Is there a minimum amount of maturing securities required for rollover?
There is currently no minimum amount of maturing securities required to rollover SOMA’s Treasury holdings. The Desk exchanges all maturing holdings for Treasury securities at auction.

Why were Treasury rollovers small from 2012 to 2015?
During the Maturity Extension Program (MEP), which ran from September 2011 to December 2012, the Desk sold or redeemed nearly all of the SOMA’s Treasury securities that would have matured before February 2016. As a result, relatively few of the SOMA’s holdings of Treasury securities matured between late 2012 and late 2015.

Why hasn’t the SOMA participated in any Treasury bill auctions since 2012?
The SOMA has not owned any bills since that time, when Treasury bill securities were allowed to mature without exchange as part of the MEP.

How might the rollover process affect the price of the auctioned securities or the supply of auctioned securities?
SOMA tenders are entered as noncompetitive bids and therefore do not affect the stop-out rate of the auction. Further, when the SOMA is awarded securities at auction, the Treasury Department increases the total issue size by the amount of the SOMA’s award. The SOMA’s add-on therefore does not reduce the supply of the security available to other market participants.

Where can I find more information on rollovers and SOMA’s Treasury holdings?
The latest data on the SOMA’s holdings can be found on the New York Fed’s website. The amount that was awarded to the SOMA at auction is reported in the Auction Results released by the Treasury Department upon the conclusion of each auction.

December 16, 2015 FAQs