Fight the Treasury? The Limits of US Debt Management and Long-End Yields

While the US Treasury can temporarily influence long-end yields through buybacks and bill issuance, it cannot permanently fight global capital markets in a new macroeconomic regime. Long-end yields and term premia will ultimately be determined by procyclical fiscal impulses, negative supply shocks, and Fed monetary policy resolve.

Key Takeaways

• 1.Treasury debt management tactics, such as terming in with bills and long-end buybacks, can only have a temporary impact on yields before relative-value equilibrating mechanisms and global capital flows reassert fundamental pricing.
• 2.Long-end Treasury yield increases primarily reflect a new macroeconomic regime characterized by procyclical fiscal policy, negative supply/energy shocks, and positive bond-equity correlations, which elevate term premia.
• 3.The ultimate shape of the yield curve depends on the Federal Reserve; failure by the Fed to signal resolve against inflation risks long-end yield spikes and US dollar weakness.

Table of Contents

• Fight the Treasury?
• THE ORIGINAL OPERATION TWIST PULLED DOWN LONG END YIELDS BUT...
• UK YIELDS ARE LEADIN...
• GILT YIELDS...
• SOVEREIGN DEBT IS IMPORTANT TO THE 30-10 SPREAD BUT NOT ALWAYS
• Does the sovereign debt burden explain long-end steepness?
• SUPPLY OF BONDS IS CONTEXTUAL
• ISSUANCE AND TWISTS DO NOT HAVE A LASTING EFFECT ON YIELDS
• AS THE CENTER OF THE GLOBAL FINANCIAL SYSTEM, UST YIELD...
• WHEN IS FISCAL EXPANSION INFLATIONARY?
• Disclaimer

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THE ORIGINAL OPERATION TWIST PULLED DOWN LONG END YIELDS BUT...

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