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Investing.com -- Deutsche Bank (ETR:DBKGn)’s US Head of Rates Research, Matthew Raskin, has provided further insight into potential actions the Trump administration could take to decrease 10-year yields. Raskin emphasized that simple declarations about reducing long-term rates would be insufficient, and a credible indication of action is necessary.
Raskin discussed several possible measures, acknowledging that each comes with potential trade-offs with other administration goals and policies. He also noted that some actions might not have as significant an impact as initially expected.
One such measure involves the administration requesting foreign official investors to increase their purchases of long-term U.S. Treasury bonds (USTs). This could potentially include non-marketable long-term bonds that could be used as collateral at the Federal Reserve’s FIMA repo facility, providing liquidity support for holders. A less radical but also less impactful approach would be to redirect funds from the Fed’s foreign repo pool into long-term USTs. The foreign pool currently holds $388 billion.
However, Raskin also highlighted potential issues with these strategies. Recent events could lead creditor nations to question the US government’s commitment to fulfilling its end of the bargain. Additionally, these policies might conflict with broader trade objectives. For instance, the Council of Economic Advisers’ Chair nominee, Miran, recently praised the idea of taxing foreign purchases of USTs, which would be counterproductive to efforts to stimulate foreign UST demand.
Raskin also mentioned the concept of "Yield Curve Control" (YCC), which could imply a target or cap on long-term UST yields. However, he sees little probability of this action being implemented, as it would require the central bank’s power to create money, which is not currently happening under the Federal Reserve.
In conclusion, Raskin maintained his stance that the most effective ways to lower US long-term yields would be to decrease growth, inflation, or deficits. Regulations to increase UST demand could help, but they would likely mostly affect relative UST pricing, rather than broadly impacting US rates.
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