What is US Treasury?

The US Exchange Stabilization Fund holds roughly $20B in FX, $20B in liquid dollar cash, and $160-170B in Special Drawing Rights, limiting standalone intervention firepower.

“Right now, the ESF has ballpark twenty billion in FX ballpark twenty billion in like liquid dollar cash, and then the special drawing rights, which it has like one hundred and sixty hundred and seventy billion of a lot but not unlimited.”

The iShares 20+ Year Treasury Bond ETF has produced a negative total return over the past 11 years, an historically unprecedented stretch for long-term government bonds.

“The iShares 20-year plus Treasury bond long-term government bonds now have a negative return over the past Nowhere for 11 years.”

Brad Setser explains how Japanese resistance to yen weakness via FX reserves could transmit pressure to the US Treasury market if Japan funds intervention by selling Treasuries.

“The impact on the treasury market would come if the Japanese resisted that use their reserves, and the excessive use of their reserves or the use of their reserves started to put pressure on the treasury market because they have to fund they would fund it by selling treasuries.”

Luke Gromen explains China's reserve strategy: the goal is not yuan replacing the dollar but gold replacing the US Treasury bond as the neutral reserve asset.

“We don't want the yuan to replace the dollar. We want gold to replace the treasury bond as neutral reserve asset.”

Hayes explains that the Fed keeps short-term rates below inflation so Treasury can issue short-dated bills cheaply, then executes a modern Operation Twist by buying back long-end bonds, effectively suppressing yields without admitting QE.

“He will make sure that the short end is cheap relative to inflation, relative to growth so that the Treasury can issue bonds at the short end and perform a sort of operation twist and buy them back on the long end.”

The US fiscal doom loop explained. higher interest expense forces more bond issuance, which pushes yields higher, which raises interest expense further, requiring yet more issuance.

“We are in this thing where we are issuing more to then kind of fix the problem that then we need to kind of issue more and it's becoming this loop and we are I don't think everybody is fully appreciating that this loop puts this pressure on the again this kind of goes back to my long end supply thing.”

Gromen frames Warsh's dilemma as a forced choice. defending the dollar (higher rates) versus defending the bond market (suppressing yields), with true Fed independence the casualty either way.

“The Fed won't be independent. They'll be effectively more married with the Treasury.”

Arthur Hayes on the Fed expanding its balance sheet via FIMA as an admission that money printing is resuming.

“The Fed expands its balance sheet to create these dollars to hand it to the Japanese so they don't have to actually long sell these treasuries. like, oh, this is basically an admission that the game is up. They're going to start printing money.”

Bob Sheehan on the fiscal doom loop being underappreciated by markets.

“We are in this thing where we are issuing more to then kind of fix the problem that then we need to kind of issue more and it's becoming this loop and we are I don't think everybody is fully appreciating that this loop puts this pressure on the again this kind of goes back to my long end supply thing.”

Russell Clark's price target for the 10-year US Treasury yield is 10% within the year.

“That gives you an interest rate around 10%. And that's still my target for the year treasury is at 10% yield.”