00:00Typically, Treasury's mantra is we want to be regular and predictable.
00:03So if we're going to do liquidity buybacks, which they talked about for, you know, several quarters before they actually
00:09enacted them, they've always announced it at the quarterly refunding announcements.
00:14And, yeah, they make little tweaks here and there of buying a little bit more five year versus two year.
00:19Right. That kind of thing. But but, you know, announcing something like this in the middle of August is not
00:25something that I've recalled in my career.
00:27And I think it's just an acknowledgment that, you know, the administration wants lower Treasury.
00:32Yeah. I mean, Paul, as simple as this. Did you call your congressman and say I'm boxed out of the
00:37housing market?
00:38That's what kind of I'm going to put my cynical Wall Street hat on and and say this just feels
00:43like, you know, President Trump probably getting a lot of phone calls from his real estate buddies at Mar-a
00:47-Lago saying, hey, rates are too high.
00:50Mr. Bessing, go out there and do something. You know, whatever you need to do to get long rates down,
00:54do it.
00:55Is there a political angle to this typically? Well, I mean, there might be a little bit.
01:00I mean, it's certainly from I think President Trump's standpoint, you know, he's always said that he wants longer term
01:05interest rates to be lower.
01:07You know, one of the one of the challenges is, is that with that, you know, being regular and predictable
01:11and then trying to manage markets from the Treasury's perspective is one of the levers that they have is just
01:17choosing where they're going to issue debt.
01:19And they've been issuing a lot of Treasury bills instead of increasing other parts of the yield curve, even though
01:24there's a lot more maturities coming up.
01:26So when during the Biden stimulus, you know, five years ago, a lot of the debt that was issued then
01:32at that point to fund it is now coming due.
01:34So they've had to increase T-bill issuance.
01:37Now, they they they had the opportunity actually to reduce issuance in the long end.
01:42So and we actually thought maybe there was like a 15 or 20 percent chance that they might do that
01:47in this past February because they had the opportunity to.
01:50You had somewhat better deficit. Right.
01:52You had you didn't need quite as much funding as we thought, you know, the prior six months.
01:58But they chose not to do that. So instead, they're buying back debt instead of just issuing a little bit
02:03less, which, you know, either way, you're still taking some money, some bonds out of the market.
02:09Will it help? No.
02:10OK, but these are signals. And I've learned reading six books.
02:14And I you've done it with 60 years of in the trenches experience.
02:18The market will test this policy, not only domestically, but globally.
02:24How will your sophisticated brethren test Secretary Besson and for that matter, perhaps the president?
02:33Well, I think we've really reached these kind of levels for a variety of reasons.
02:38In fact, we put out a note this morning just highlighting how it's not one thing that's been driving yields
02:43higher.
02:43Right. So it's not only fiscal deficits, but that's part of it.
02:46It's not only higher yields globally, but that's part of it.
02:50Right. Like if you look at Japanese yields, you know, they're at the highest level they've been at in decades.
02:53And so now there's there's other bonds that are competing with the U.S.
02:59You know, it's it's A.I. issuance in the long end, but not only that.
03:03Right. So so you have a whole variety of things that are going on.
03:06You know, taking out an extra two billion dollars in, you know, variety of sectors every single month.
03:12It's not going to help that much, really.
03:15It will help liquidity in the off the run space. Right.
03:18So but but but that's more of a relative value.
03:21Then why did the people really helps?
03:23I don't mean to interrupt, Ira, but why did the market react seismically if it doesn't matter at the margin?
03:30Well, I think because people think maybe there's more behind it.
03:34So to your point, will the market test this? Right.
03:37And, you know, if you have a liquidity event and look, we're in the middle of August right before the
03:42Federal Reserve minutes are coming out with no other data or anything around, you know, liquidity is not there.
03:47So this was an opportunity maybe for some shorts to to get to get stopped out and just and just
03:54say, OK, look, I'm just going to take some chips off the table.
03:56I'm going to buy back. I doubt that there's going to be a lot of legs to this move, at
04:01least not without another catalyst.
04:03Right. And that other catalyst may be something like a hint that there are going to cut short end issuance
04:08or that it could be that the next couple of data points that we wind up getting are pretty weak.
04:13And that winds up helping the market rally. But yeah. Yeah. I mean, look, is this is this worth like
04:18basically two times what the the daily move priced into the market is?
04:25Probably. But it's not more than that. Right. So that's eight to 10 basis points kind of on the 10
04:29year yield.
04:30Yeah. I just I beat my neighbor who trades the long bond of Morgan Stanley. And I said, does this
04:34change your life?
04:35And he says, not really. I'll see you at Swan Tavern. Thank you, Paul. Brilliant.
04:39Peter Bookfar just published his wonderful The Book Report. And Peter Bookfar says it's just a rearrangement of maturity schedules.
04:48Oh, OK. That makes more sense. So do I expect the U.S. Treasury to be in the market today
04:54for a week, for a month?
04:56So they're not starting this till September. So, again, it's like anticipating. Right. So, yeah.
05:01Yeah. Well, what happens is, again, this is part of the whole, quote unquote, regular and predictable. Right.
05:06So so that they set out a schedule every the beginning of every month, kind of right before, right around
05:11the time that they announced the the issuance for for the next couple of auction cycles.
05:17And then when they do that, they they'll announce the sizes and then what they're going to buy in each
05:22individual bucket.
05:23They just did that last week. Right. So now so they're waiting. And basically, again, regular and predictable.
05:29So here's a predictable. We're now doing four billion dollars of buybacks instead of two billion in these maturity buckets
05:34starting September 9th.
05:36Right. And that's when they'll they'll start to buy these slightly higher sizes.
05:41Quickly. What's it mean for Chairman Warsh?
05:45Good question. Probably very little. I mean, you know, so it's interesting.
05:49You know, we always miss this in the Fed's mandate. One of the Fed's mandates is to keep moderate long
05:54term interest rates.
05:55But no one ever defines that. Right. Congress doesn't define it.
05:58And, you know, you know, moderate versus, you know, nominal GDP where we are today.
06:03We could argue that we're kind of moderate. Right. And look, you know, Paul, Tom, you the three of us
06:08have been in the market long enough that we remember yields when they were here, you know, 30 years ago.
06:13So so for me, you know, my first mortgage was seven percent. Guess what? Mortgage rates.
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