Bond Buybacks Don't Solve Structural Problems

Dow Jones
08/28

0521 GMT - A bond buyback doesn't retire debt and so doesn't solve the structural problems that have been driving yields up, CIFC Asset Management's Natalia Lojevsky says in a note. "Treasury buys back bonds and funds it by issuing something shorter. That is a maturity swap, not deleveraging," the managing director says. With that, Treasury is treating a supply problem as a liquidity problem, she says. The long end of the Treasury curve is being pressured by simultaneous claims on the same finite pool of duration buyers: the Treasury, the AI capex cycle and the absence of the biggest and most price-insensitive buyer from the market, the Federal Reserve, and to some degree other reliable central bank buyers like Japan, China and the Gulf states, she says.

 

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