Treasury Buybacks Are a 'Cloud' Over Markets, Apollo's Slok Says

Summary

Apollo Chief Economist Torsten Slok argues that the US Treasury's buyback operations, along with expanded FEMA buying and possible use of the Treasury General Account, are acting as a cloud over the long-end rates market by creating the threat of sudden yield drops despite limited actual size. He says the fundamental drivers of higher rates, inflation and the fiscal deficit, remain intact, making these interventions mostly spot operations at the margins. Slok also warns that shifting issuance to the front end would lower debt maturity and increase sensitivity to Fed policy, and he discusses AI's near-term inflationary effects.

• Treasury is using buybacks, increased FEMA intervention, and potentially the Treasury General Account to limit long-rate increases.
• The Treasury General Account holds more than $900 billion, so the threat of large long-end purchases could suddenly jerk yields lower.
• The setup resembles currency intervention, where signaling alone may shake out higher-rate bets.
• Fundamental forces still point to higher long rates because inflation is elevated and deficits are large.
• Shifting issuance to T-bills would lower weighted average maturity and make debt more sensitive to Fed rate changes.
• Slok expects the Fed's Jackson Hole speech to focus on economics and framework rather than forward guidance.
• AI buildout is near-term inflationary due to demand for memory, chips, equipment, land, and construction, but later disinflationary.