Wellington: The U.S. expansion of buybacks is a "gamble" that short-term interest rates will decline

Fidelity economists Tom Porcelli and Michael Pugliese pointed out in their research report that, given the unsustainability of fiscal policy, the U.S. Treasury's decision to at least double the scale of long-term bond repurchases needs to shift towards increasing short-term debt issuance to fund it, which amounts to a "gamble" on lower short-term interest rates. Short-term interest rates may decline, but only if inflation remains sticky and expectations for neutral rates continue to rise. They wrote: "In other words, in a situation where the budget deficit accounts for 6% of GDP and interest costs are at historical highs, shortening the weighted average duration of Treasury bonds is a risky move." Liquidity repurchase tools are not intended to serve as "duration support tools," and while the subconscious reaction may be positive, the market may not view it this way in the long run