Last year, my wife and I put on an event to recognize the success of a fast-growing division of the Hunt Companies. The event was held at the Boettcher Mansion on Lookout Mountain outside Denver. Corrina, a sommelier and chef, provided the amazing food and wine, while I gave a presentation about the Treasury and the Fed. I will never forget her perfect high-altitude chocolate soufflés.
We were gratified that Hunt asked us to do it again this year for a larger group. In preparation, I built a new analytical database that lets me dig deeper into the market activities of the Treasury and the Fed. The second dinner took place on a beautiful evening after a rainy day in early September. Corrina presented wonderful food and wine with a Rhône Valley theme, and my talk prompted some lively discussion.
I then began adapting the talk for the Denver Chapter of the Global Association of Risk Professionals (“GARP”). I will give this new talk, After the Taper: Risks for the Fed and the Treasury, on Monday, Nov. 3, at Hodson’s Bar and Grill in downtown Denver.
On the last day of September, I viewed a webcast of an event at the Brookings Institution where a new paper on the Treasury and the Fed was presented by its Harvard authors. Titled “Government Debt Management at the Zero Lower Bound”, the paper argues that the Treasury, by extending the length of its debt, has undermined the Fed’s efforts to stimulate the economy by buying long maturities from the market. The paper echoed around the financial and economic communities, but its argument struck me as more abstract than realistic. It is true that the average maturity of the Treasury’s debt has increased slightly, and the theory that this put upward pressure on rates might be valid, but the reality is that the Treasury’s debt extension has mostly been due to the debt’s unusual front-loaded structure. New sales of Treasuries are actually very short, and the Fed and the Treasury mostly avoided each other along the yield curve.
I wrote my reaction to the Brookings paper in a blog post, Getting it Wrong on the Treasury and the Fed. I was pleased that Matt Klein of the Financial Times then cited my analysis in his article The real reasons why the US Treasury’s debt maturity has been rising. Another version of my post is under consideration for publication by an investment news outlet.
Next week’s talk will include my latest work. I hope you will join us if you are in town. Click here for free registration.
Although QE may be ending, the Fed’s portfolio will persist for many years. I will be watching.