Here's why this analyst is keeping a close eye on the U.S. Treasury.
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00:00 All right, let's talk treasuries, Bob, while I have you. Buried in a very busy week for the Fed
00:03 was the decision from the Treasury to slow the pace of its long-term debt sales, right? We talk
00:08 about the difference between the short-term and the long-term. Bob, we've talked a lot about how
00:12 important Treasury yields are in this particular market. What is the significance of this move,
00:17 and what do you think it could mean moving forward? JD, at some point, the debt issuance
00:23 is going to be large. I don't know when that's going to be. It could be next month. It could be
00:26 next year. Who knows? And I mean very large. Basically, they have to roll over maturities,
00:32 and they have funding to pay for short-term obligations for this week, next week, next month.
00:37 They pay military salaries. They pay Social Security, Congress. They pay their own salaries,
00:44 and so forth, and a lot of other bills that come due in a short-term basis. So they have to
00:49 roll over the maturities that come in. And whatever their short-term funding needs are,
00:55 just like, you know, as we are when we're families and we manage a budget, if our short-term needs
01:00 are large, we have to borrow more money. So that was the concern this week, that the Fed was going
01:04 to be issuing a lot of debt and creating a lot of supply for the buyers and the dealers out there
01:12 who buy Treasuries. But that didn't seem to happen this week. But again, it's going to happen at
01:17 some point in time. It's going to surprise everybody. But I think the anticipation,
01:21 JD, coming in this week, that the expectation was going to be a very, very large refunding,
01:26 the government said, well, you know what, we won't do it this week. We'll just keep pushing off our
01:31 short-term obligations for a little bit. And when nobody's looking, we'll go ahead and sell
01:36 a lot of paper out onto the street. But, you know, we can continue to run trillion-dollar deficits,
01:41 but how long can they go on? The government may be threatened with a shutdown in just a
01:46 couple of weeks, and that's going to create a lot of chaos. And if that happens, well,
01:50 you know, what are we going to deal with? I think for right now, though, JD, we're just going to
01:54 take things day by day. Yeah, we're watching that date of November 17th in terms of a potential
01:59 shutdown, of course, a new-look Republican Congress. A very quick follow-up on this, Bob,
02:03 if I can. Obviously, the emphasis for the last year and a half, understandably so, has been on
02:07 Jay Powell at the Fed. Do you expect much more of the conversation to shift over to Secretary Yellen
02:13 over at the Treasury, given the fact that the Treasury's biggest buyer of the last few years,
02:17 the Fed, has now gone missing? You don't necessarily have the interest in Treasuries
02:22 from countries abroad. On top of the federal deficit, $1.7 trillion for the last fiscal year.
02:27 I mean, my goodness, Bob, it really seems as if the emphasis should be a lot more,
02:31 correct me if you think I'm wrong, on the work of the Treasury and the really uphill battle,
02:36 it seems, as if Secretary Yellen and her colleagues there have.
02:39 Yeah, you know, I think there's something out there, JD, that really will help the government,
02:46 and it would be lower interest rates. We've seen rates fall from the last couple of days. The
02:51 10-year yield has dropped to about 5.5 percent now. It was up near 5 percent last week. So we've
02:57 had a pretty sharp drop in interest rates, which means that there's some interest and some demand
03:04 for buying bonds. And as long as that continues to hold up, JD, you can have some enormous amount
03:10 of supply out there. And as long as there are dealers out there at the auction to buy bonds,
03:16 then it shouldn't be a problem. Even in the absence of the Fed, even in the absence that
03:23 we talked about last week, the Chinese are selling bonds, they're a net seller of bonds,
03:27 and have been for a couple of years, U.S. Treasuries. Even with the absence of those
03:32 buyers, I still think there's some interest and some, not so much speculation, but there's some
03:37 interest and demand to buy bonds. So even as interest rates start to slide, if the market is
03:45 starting to see less inflation down the road, we're going to see the long end of the curve
03:49 starting to pull down. And eventually, the Fed will be pulling down short-term.
03:54 [END]
03:55 Transcription by CastingWords
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