Oddbean new post about login | logout Thoughtful note Is your position that the relative increase in short term issuance drives down long term rates? Because the long term supply decreases against sticky fixed demand from institutions like insurance companies?
Yes!
Then why would they need to push for demand at the long end? There already is an outsized relative demand for the long end, no?
Good observation. I‘d assume that demand is not strong enough, which is why issuance has to be suppressed by scaling down long-dated issuance.
So you think maybe Yellens logic is “there’s not enough demand to finance the government via the long term. We don’t know how soft the long term demand is, so we will over issue on the short end just to be safe”?
To your hypothesis, many bitcoin thought leaders grabbed onto nouriel roubini’s recent paper on covert yield curve control. Perhaps that’s the case but my view on it is Yellen is financing on the short end because rates are higher but something closer to floating. It’s akin to what many mortgage borrowers are doing right now - considering 3/1 ARMs over 30 year because they don’t want to lock a bad rate in for a long time. The market has shown us no signs of reduced to demand for the long end (eg the inverted yield curve). In fact, the swaps market is telling us rates across the curve should be lower. And Powells interest rate policy has held both the long and short end 200-300bps higher than the market expects based on future growth expectations.