The US Treasury just doubled down on its effort to keep the long end of the bond market from going haywire, and one of Wall Street’s most influential Fed watchers thinks it won’t matter much for the central bank’s next move.
Krishna Guha, vice chair and head of central bank strategy at Evercore ISI, said the Treasury Department’s decision to increase its planned purchases of outstanding 10- to 30-year debt “certainly complicates things” for Federal Reserve Chairman Kevin Warsh. But he added that it won’t change the Fed’s September interest rate decision.
What the Treasury actually did
On August 19, the Treasury announced it would raise the maximum size of its nominal long-end buyback operations from $2 billion to at least $4 billion per operation. That’s a clean doubling, effective September 9 through November 4.
The timing isn’t coincidental. Fiscal deficits continue to widen, pushing more supply into the market at the exact moment investors are demanding higher compensation for holding long-duration government debt. Elevated Treasury yields have created a feedback loop where higher borrowing costs amplify the deficit, which in turn pushes more issuance into the market. The buyback expansion is designed to interrupt that cycle, at least mechanically.
