Thanks for sharing this great summary! Do you have any explanation as to why the Treasury continues to issue short-term debt instead longer-term debt given the inverted yield curve? Does this have anything to do with liquidity demand from the financial markets?
Great question. Issuing LT debt depends largely on the markets tolerance to risk AKA duration. Secondly financing LT debt is harder, there are less available liquidity channels (i.e RRP) to fund transactions, which answers your second question - yes demand for monetizing LT debt is more impactful on the broader market. If the market absorbs LT debt poorly, yields rise and discount gets repirced.
Thanks for sharing this great summary! Do you have any explanation as to why the Treasury continues to issue short-term debt instead longer-term debt given the inverted yield curve? Does this have anything to do with liquidity demand from the financial markets?
Great question. Issuing LT debt depends largely on the markets tolerance to risk AKA duration. Secondly financing LT debt is harder, there are less available liquidity channels (i.e RRP) to fund transactions, which answers your second question - yes demand for monetizing LT debt is more impactful on the broader market. If the market absorbs LT debt poorly, yields rise and discount gets repirced.