Peter Tchir, from Academy Securities, expressed that Federal Reserve Chairman Kevin Warsh is not in significant danger of losing control over the bond market. This comes amidst rising U.S. Treasury yields, with the 30-year bond reaching 5.33% earlier in the week, and recent intervention by Treasury Secretary Scott Bessent.
Bessent announced an increase in bond repurchase operations, from $2 billion to "at least" $4 billion per operation, aiming to reduce long-dated debt supply and lower yields. While yields initially dropped to 5.18% post-announcement, they quickly rebounded to 5.26%. Tchir suggested that the Treasury's current repurchases, although substantial, are a "drop in the bucket" compared to the overall bond market size, citing Google's recent $4.5 billion 30-year bond issuance as a comparison.
Tchir believes that for Bessent's efforts to effectively manage long-term yields, Warsh's help will be crucial. He suggested that an "Operation Twist" by the Fed, involving selling shorter-dated bonds and buying longer-dated ones, would be the next "obvious" step if there's a genuine commitment to controlling the yield curve. This approach would be balance sheet "neutral," aligning with Warsh's stated desire not to grow the Fed's balance sheet, and could significantly impact the market by removing duration.
