Our nincompoop Secy of the Treasury believes currently soaring long-term bond yields are probably nothing to worry about. So he’s buying back long-term US Treasury debt (UST) hand-over-fist—-
“The U.S. Department of the Treasury is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities (the 10-year to 20-year sector and the 20-year to 30-year sector). The current maximum size of $2 billion per operation will be at least $4 billion per operation.”
But, pray tell, with what is he buying it with, dear Lizza……with what?
The fact of the matter is that Uncle Sam is running a $2 trillion+ annual cash flow deficit and has outstandings that are knocking on the door of $40 trillion. So this is not a “debt buyback” in any meaningful sense of the word: It amounts to merely shuffling the rapidly ballooning public debt from the back-end to the front-end of the yield curve.
But from a Treasury debt management viewpoint, for heaven’s sake, why? After all, when you look at the $32 trillion held by the public (excluding government trust funds), it is obvious that the front end of the curve is already chock-a-bloc with UST holdings. In fact, fully 63% or $20.3 trillion has maturities of 5-years or less or consists of variable rate TIPS. Yet our genius Treasury Secretary is buying in bonds of 10 years or more and paying for them with new borrowings at the front end of the curve.
