Will Gibson

LEGENDARY INVESTOR STANLEY DRUCKENMILLER JUST WROTE AN OP-ED FOR THE WSJ ABOUT BOND YIELDS. He is not happy with what the Treasury is doing, thinks that it’s effectively a gimmick, and wants the Bond Market to freely determine where yields should go. His op-ed summarized below: - The Treasury’s decision to double long-dated bond buybacks from $2B to at least $4B per operation looks less like liquidity management and more like an effort to push down long-term yields after the 30-year yield reached a 19-year high. - There was no clear market dysfunction forcing intervention. Auctions were functioning, volatility was contained, and trading remained orderly. With inflation still above target, unemployment near full employment, deficits around 6% of GDP, and debt above $40T, higher yields can be viewed as the market pricing fiscal risk appropriately. - Suppressing those yields risks weakening one of the few remaining forms of fiscal discipline on Washington. Lower borrowing costs reduce the pressure to deal with deficits, entitlement spending, and the broader debt trajectory. - Buying long-duration Treasuries while funding the purchases with short-term bills effectively removes duration risk from the market, making it resemble a small form of quantitative easing conducted by Treasury rather than the Fed. The concern is that once markets believe officials are defending a certain yield level, they may keep testing that commitment. - The better solution is to let the bond market set the price of government borrowing and address the underlying fiscal problem directly: reduce the primary deficit, reform entitlements gradually, and manage debt more responsibly. Liquidity tools can delay a fiscal problem, but they can’t solve it. These yields are becoming an issue. When someone like Drucks has to write an op-ed, you know he’s getting annoyed. Either we cut back on spending and get fiscal policy in order (no party will do that) or we end the Iran war to get yields down. If we don’t do either, this problem isn’t going away.