The Treasury Securities Market: Overview and Recent Developments

By Dupont, Dominique; Sack, Brian et al. | Federal Reserve Bulletin, December 1999 | Go to article overview
Save to active project

The Treasury Securities Market: Overview and Recent Developments

Dupont, Dominique, Sack, Brian, Archambeault, Emilie, Federal Reserve Bulletin

Dominique Dupont and Brian Sack, of the Board's Division of Monetary Affairs, prepared this article. Emilie Archambeault provided research assistance.

The market for U.S. Treasury securities is by many measures the largest, most active debt market in the world. At the end of September 1999, the amount of Treasury debt held outside federal government accounts totaled about $3.6 trillion, close to the amount of outstanding debt securities issued by all U.S. corporations combined.(1) Moreover, enormous amounts of Treasury securities are traded every business day. Over the first nine months of 1999, the primary dealers in government securities, which are among the most active participants in the market, together executed an average of $190 billion worth of transactions in the securities each day.(2)

The heavy trading is an indication of the pivotal role of U.S. Treasury securities in world financial markets. Investors of many types--commercial banks, investment banks, money market funds, insurance companies, individual investors, and foreign central banks, among others--use the Treasury market for investing and hedging purposes. Yields on the securities are widely viewed as benchmarks in the pricing of other debt securities and are analyzed for the information they might reveal about market participants' expectations about the future path of the economy and monetary policy.'

This article begins with a description of the structure of the Treasury market, including the process by which securities are issued in the primary market and the mechanics of the secondary market. The determinants of investor demand for Treasury securities are then discussed in some detail. The article concludes with a discussion of several recent developments and emergent trends that have affected the market, including the advent of inflation-indexed securities, a reduction in the issuance of Treasury securities, and shifts toward electronic trading and alternative clearing arrangements.


The market for U.S. Treasury securities has a complex structure and involves numerous participants-the Department of the Treasury, the Federal Reserve System, government securities dealers and brokers, and other holders of Treasury securities.

Scope of the Market

The federal government finances its expenditures in excess of tax receipts through the sale of debt obligations. Over the years, the Congress has delegated to the Department of the Treasury its authority under the Constitution to issue debt securities. The United States, initially as the Continental Congress, first incurred debt in 1776 when it borrowed funds to finance the Revolutionary War.(3) Total Treasury debt remained fairly small in the first half of the nineteenth century but rose sharply with the Civil War and again with World War I (chart 1). After declining slightly, the debt increased nearly threefold during the Great Depression and exploded in the 1940s as the government financed expenditures related to World War II. From its postwar low in 1949, outstanding Treasury debt grew gradually for nearly two decades before accelerating at the time of the Vietnam War and during the subsequent period of high inflation. In the 1980s, the growth of the stock of debt picked up further, spurred by the tax cuts and rapid increases in defense spending of the decade.


In recent years, budget surpluses have halted the upward climb in the total amount of Treasury debt held outside government accounts. However, the overall magnitude of outstanding debt remains substantial, a legacy of past budget deficits. At the end of September 1999, the total par value of outstanding Treasury debt, including that held in government accounts, stood at about $5.6 trillion, or about 61 percent of the total annual output of the economy. This fraction, though considerable, is well below the peak after World War II (chart 2).

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

The Treasury Securities Market: Overview and Recent Developments


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?