Great piece, and I tend to agree with Path 1. I still struggle to see why Bessent would normalize maturity issuance at this point in time. The Fed providing RMP at the short end helps the Treasury keep issuing bills for now, and with long-end yields near 5%, why stress the system with more duration supply at this point?
If anything, I think more buybacks could be in play. The Treasury has little incentive to force more long-end issuance into the market when the current setup allows it to keep leaning on bills without immediately pressuring the back end of the curve.
Oops, apologies Sam, totally missed this one before!
Yeah near-term we're with you. Bessent has zero incentive to normalize right now. Fed bill buying does the work at the front, money funds are still absorbing, and with the long end where it is, volunteering duration would be self-inflicted. Bills-heavy is the path of least resistance and it's our base case for Wednesday too.
Where we'd push the framework a layer up is on destination versus pace. Every quarter of deferral grows the coupon obligation that eventually clears. WAM at 92 months only stays there with an issuance mix that biases toward coupons over time. Bessent doesn't have to flip the script. The math runs through anyway.
Fully agree buybacks are in play. They compress term premium short-term and give the destination a slower glide. We don't think they change where this ends up though.
Great piece, and I tend to agree with Path 1. I still struggle to see why Bessent would normalize maturity issuance at this point in time. The Fed providing RMP at the short end helps the Treasury keep issuing bills for now, and with long-end yields near 5%, why stress the system with more duration supply at this point?
If anything, I think more buybacks could be in play. The Treasury has little incentive to force more long-end issuance into the market when the current setup allows it to keep leaning on bills without immediately pressuring the back end of the curve.
Oops, apologies Sam, totally missed this one before!
Yeah near-term we're with you. Bessent has zero incentive to normalize right now. Fed bill buying does the work at the front, money funds are still absorbing, and with the long end where it is, volunteering duration would be self-inflicted. Bills-heavy is the path of least resistance and it's our base case for Wednesday too.
Where we'd push the framework a layer up is on destination versus pace. Every quarter of deferral grows the coupon obligation that eventually clears. WAM at 92 months only stays there with an issuance mix that biases toward coupons over time. Bessent doesn't have to flip the script. The math runs through anyway.
Fully agree buybacks are in play. They compress term premium short-term and give the destination a slower glide. We don't think they change where this ends up though.