Thoughtful note
Is your position that the relative increase in short term issuance drives down long term rates? Because the long term supply decreases against sticky fixed demand from institutions like insurance companies?
Treasury bill, or short-term US debt paper, has historically ranged between 15% and 20%. In recent months, this percentage of T-bill of total US debt has broken above 20% and it might well be on it‘s way to 25% (or even higher).
As institutions like pension funds are starved from getting long-dates securities, other have been buying the short end. Who? Banks, credit providers as well as the infamous US stablecoiner provider Tether.
Why is this significant?
This is covet yield curve control or yield supression because it supresses the long-end of the curve.
As a matter of fact, the yield of long-dated treasuries should actually be higher, about 100 basis points by conservative estimates.
The question we need to ask is how will the US get investors back into long-dated treasuries?
-Bring down short-term policy rates (significantly) to make long-end debt more attractive.
-Push for a recession to create save haven demand for long-term treasuries (beat steepener). Rather improbable, no?
-Go new ways. For example, as nostr:npub1s5yq6wadwrxde4lhfs56gn64hwzuhnfa6r9mj476r5s4hkunzgzqrs6q7z has explained, what if the US Treasuries were to back long-dated bonds with a Bitcoin component. Could this be enticing enough for regular investors to buy into long-end Treasuries?
Discussion
Yes!
Then why would they need to push for demand at the long end? There already is an outsized relative demand for the long end, no?
Good observation. I‘d assume that demand is not strong enough, which is why issuance has to be suppressed by scaling down long-dated issuance.
So you think maybe Yellens logic is “there’s not enough demand to finance the government via the long term. We don’t know how soft the long term demand is, so we will over issue on the short end just to be safe”?
To your hypothesis, many bitcoin thought leaders grabbed onto nouriel roubini’s recent paper on covert yield curve control.
Perhaps that’s the case but my view on it is Yellen is financing on the short end because rates are higher but something closer to floating. It’s akin to what many mortgage borrowers are doing right now - considering 3/1 ARMs over 30 year because they don’t want to lock a bad rate in for a long time.
The market has shown us no signs of reduced to demand for the long end (eg the inverted yield curve).
In fact, the swaps market is telling us rates across the curve should be lower. And Powells interest rate policy has held both the long and short end 200-300bps higher than the market expects based on future growth expectations.