A $1.8 Trillion Bond Glut Imperils Treasuries’ Seven-Year Rally
- Long-term auctions have grown, Fed buying to slow versus 2020
- Shift is ‘key part of our calculus’ pointing to higher yields
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The era of swelling Treasury auctions may be over for now, but investors are still about to absorb a historical deluge of long-term debt next year, with potentially painful implications for returns.
The math is simple: The Treasury is skewing its issuance more toward longer maturities, easing back on the bill sales it relied on in 2020 to pay for pandemic relief. At the same time, the Federal Reserve is likely to buy significantly less of the government’s debt on the secondary market in 2021, after hoovering up a massive amount this year to buoy the economy and keep markets functioning smoothly.