Guha and Steve Eisman were discussing the Treasury's bond buybacks at a time when 10-year yields were around 5.25%. Guha's view is that the buybacks failed to bring yields down and may have pushed them up, because they made it look as though the government was having trouble placing its debt.
Jr.: Well, it's certainly the case that on LCR and a lot of other liquidity regs, absolutely, the administration and the Fed together, because they have overlapping authorities on some of these things, are looking at reforming regulations in a way that, in effect, encourages banks to hold fewer Fed reserves, which would help Kevin Walsh in his goal of bringing down the Fed balance sheet and potentially hold more treasuries in return. Now, they may prefer to hold Treasury bills, not necessarily Treasury bonds. Again, the short rated rather than the long tenant debt. But absolutely, there is an effort to, I think, sort of tilt the regulatory playing field in that direction. Scott would probably say that it was biased towards holding Fed reserves beforehand. So he'd say, I'm just evening it out rather than tilting it, but certainly shifting it to encourage them to hold more government debt. I think that's absolutely part of what's going on. The other thing that Scott Besson is effectively doing by doing these buybacks is he's also sending a signal that future government debt issuance may be shifted from these longer-term bonds to the shorter duration bonds, right? And obviously, it does matter what debt the government issues next year, the year after that, the year after that. So that signaling channel can also have some effect on the market today. But I would say, you know, if we come back to this big move that we've seen, you know, 10-year yields trading around five and a quarter as we record this discussion, it looks pretty clear that Besson did not succeed in damping down these yields. And arguably, this may have actually on net hurt them rather than helped them.
Because of credibility. Because
of credibility issues. Serious governments like the U.S. government tend not to intervene in their own debt market. That's the sort of thing you find more often in struggling emerging markets. Right. So it doesn't help when you start, you know, it looks to investors like you, the U.S. government, you know, are feeling more difficulty getting your debt acquired in the marketplace. And that doesn't help confidence.
I'm going to ask you a very pragmatic question, but I don't know if you're going to be willing to answer it, which is I think everybody would agree that there is some level of long-term rates, let's use the ten-year as a proxy, where the economy. Really starts to slow.
Yep.
I don't know where that rate is. I don't know if you know where that rate is. I'm wondering, do you have a guess as to where you think roughly that could be? And this is a tough question.