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This chapter examines Treasury debt management during the New Deal, from the spring of 1933 to mid-1939. Treasury Secretary Morgenthau accomplished two debt management objectives that were most clearly evident at the start of the New Deal: lengthening the maturity of the debt and refinancing the last two Liberty Loans. He also recognized the importance of introducing a more flexible policy at the interface between Treasury cash management and Treasury debt management, and he developed a bond auction initiative to address that need. When the initiative failed, he fell back on the program of issuing tax date bills. In mid-1939 the two most significant shortcomings of Treasury debt management were the continued reliance on fixed-price sales of notes and bonds; and the failure to offer bonds with predictable maturities.

This chapter discusses Treasury debt management during the Great Depression. The most important development in Treasury debt management was the introduction of regular and predictable auctions of thirteen-week Treasury bills. These would serve as a model for the regular and predictable note and bond auctions that came to characterize Treasury debt management in the last quarter of the twentieth century.

Federal Reserve action has resulted in an increase in the prices of Treasury securities and a corresponding decrease in Treasury yields. Treasury securities are backed by the Full Faith and Credit of the United States. The Treasury Department issues Treasuries (bills, notes, and bonds) that represent direct obligations of the U.S. government. This chapter provides an overview of Treasury securities and their use by financial market participants to approximate the risk-free rate of return. It looks at primary dealers of Treasury securities and the factors that influence the yield and therefore the pricing of Treasury notes. It also discusses bond auctions and their effect on price, fixed-income securities and floating-rate securities, Treasury Inflation-Indexed Securities, and STRIPS (separate trading of registered interest and principal securities that are created through a process known as coupon stripping).

This chapter begins with a discussion of the purpose and goals of treasury securities. Treasury securities are a type of debt instrument providing limited credit risk. U.S. Treasury bills, notes, and bonds are issued by the Treasury Department and represent direct obligations of the U.S. government. Treasury securities are used to meet the needs of investors who wish to “loan” money to the federal government and in return receive a fixed or floating interest rate. The Treasury yield curve is a benchmark for fixed income securities across the spectrum of debt securities. The remainder of the chapter covers types of treasury securities, pricing, bond auctions and their effect on price, interest rates, and STRIPS (separate trading of registered interest and principal securities).