by I ran across a couple lame attempts at blaming the U.S. Treasury for not extending the duration of issuance during the pandemic low in yields. This is entirely typical for market commentary — going after fiscal policymakers and ignoring the major culprit, which is the central bank. To the extent that the United States has put itself into an awkward macro stabilisation situation with respect to interest rate expenditures, it is the result of the brain trust at the Federal Reserve.One could try arguing that if the Treasury lengthened issuance maturities and the Fed buys those bonds back, the Treasury has locked in their funding cost and that is all that matters. The problem is that approach ignores that the Fed is a wholly-owned subsidiary of the Treasury1, and so when the Fed blows itself
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I ran across a couple lame attempts at blaming the U.S. Treasury for not extending the duration of issuance during the pandemic low in yields. This is entirely typical for market commentary — going after fiscal policymakers and ignoring the major culprit, which is the central bank. To the extent that the United States has put itself into an awkward macro stabilisation situation with respect to interest rate expenditures, it is the result of the brain trust at the Federal Reserve.One could try arguing that if the Treasury lengthened issuance maturities and the Fed buys those bonds back, the Treasury has locked in their funding cost and that is all that matters. The problem is that approach ignores that the Fed is a wholly-owned subsidiary of the Treasury1, and so when the Fed blows itself up on hare-brained levered rates positions, the Fed losses will work its way into the fiscal accounts via reduced dividends. Financial accounting consolidates wholly-owned entities for a reason....
Brian Romanchuk