Fed Must Act as Treasury Buybacks Fall Short, Says Academy Securities

The US Treasury has doubled the size of its liquidity support buybacks for longer-dated government debt, but according to Peter Tchir, head of macro strategy at Academy Securities, this move is 'kind of mediocre'. The reasoning behind this assessment is that the Treasury can't shoulder this burden alone and needs the Federal Reserve to signal that rate cuts are on the horizon.

Tchir argues that when the Fed holds rates high, the cost of servicing existing government debt stays elevated, making every Treasury auction more expensive. This is particularly concerning given that 30-year Treasury yields have recently touched levels not seen since 2007, at around 5.26%. The last time yields were consistently in this neighborhood was during the housing bubble.

Tchir believes that the Federal Reserve needs to explicitly remove hikes from the conversation and start talking about cutting interest rates. This would help to address the ballooning government interest bill, which is a major concern given the growing federal deficits. The expanded buyback program offers some near-term support for long-dated Treasuries, but Tchir's argument highlights a fundamental tension in current policy.