Review of the US Treasury Department's most recent efforts to intervene in the jittery bond market. Discusses Bessent's possible thought process and how the Fed might act (or not) in the coming months, and how the Fed and Treasury will need to coordinate:
Mr. Warsh is also likely to pursue policies that reduce the Fed’s $6.8 trillion portfolio of government bonds and mortgage-backed securities, having called for a “leaner, meaner balance sheet” at a congressional hearing last month.
A smaller balance sheet, depending on how it is pursued, could put the Fed “at cross-purposes” with the Treasury, said Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets. “You’ve got Bessent who obviously would prefer not to have long-end yields going up, and then you’ve got Warsh now suggesting that he’s going to tighten policy by pushing long-end yields up through balance sheet action.”
Mr. Warsh has called for more coordination between the Treasury and the Fed, however, suggesting that the central bank chairman will not proceed unilaterally. One potential opportunity could arise if the Fed shifts the composition of its balance sheet, such that it is holding more short-term securities rather than longer-term ones over time. That would correspond with Mr. Bessent’s penchant for issuing Treasury bills, which mature in one year or less. In the wake of the Mr. Bessent’s buyback announcement, investors are already preparing for the possibility that he cuts back on the amount of longer term debt to be issued going forward.
Posted by hypsignathus
5 Comments
GOP = party of small government
He went on CNBC today to talk about it and claimed the following:
1. There is a very good chance the Federal deficit has peaked.
2. 40 Trillion debt isn’t that bad as we can grow our way out of it
3. The new tariffs wont get overturned and will help with the debt
4. The administration is working of fiscal consolidation that will also reduce the debt.
Literally just a joke of an administration. They will say anything and contradict themselves endlessly. No wonder the bond market is seemingly ignoring them.
The year is 2040. You take your kids to McDonald’s after soccer class. The value menu only costs $10 for a small bag of fries. You download the app and earn some points. After a few purchases, you might one day have enough points for the $40 Big Mac. Life is good.
Narrator: That was not actually how interest rates work.
Could this actions actually damage their capacity to issue bonds at lower yields?
Like, them admitting to want to fudge with the bond market can inflict bearish sentiment?