Boosting Bond Buybacks Is Tactical Move, Bullard Says

Summary

James Bullard discusses the US Treasury's increased buybacks of longer-dated debt, calling them an unexpected tactical move that caused an outsized market reaction. He argues the buybacks do not change the fundamental drivers of long-end yields: large fiscal deficits and the Fed on the sidelines. Bullard highlights 30-year yields above 5% and 10-year yields heading toward 5%, and says deficit or monetary policy action is needed to prevent yields from becoming too high.

• The US Treasury is boosting buybacks of longer-dated debt.
• Bullard calls the move an important tactical step, not a fundamental shift.
• He says the market reaction is outsized because the move was unexpected.
• The fundamental drivers of long-end yields are large fiscal deficits and a Fed on the sidelines.
• He notes unemployment is 4.1% and core PCE inflation is still over 3%.
• The 30-year yield is above 5%, and the 10-year yield is heading toward 5%.
• Bullard says deficit or monetary policy action is needed to avoid too-high yields.