Federal Reserve Chairman Kevin Warsh will deliver his first keynote speech since taking office this morning at Jackson Hole. The market is watching to see if he will comment on the Treasury's decision to at least double the repurchase limit for long-term government bonds to $4 billion per transaction.

The Wyoming conference hosted by the Kansas City Fed is often used to signal the path of interest rates. Investors generally do not expect this chairman, appointed by Donald Trump and sworn in in May, to continue the forward guidance of his predecessor. He advocates for less communication, allowing market prices to indicate tightening, and last month interpreted the rise in U.S. Treasury yields as the market tightening on its own.

Last week, Treasury Secretary Scott Bessent announced that from September 9 to November 4, the repurchase limit for nominal bonds with maturities of 10 to 20 years and 20 to 30 years would be raised from $2 billion to at least $4 billion per transaction, citing long-end liquidity. The 30-year yield previously reached about 5.31% to 5.34%, the highest since 2007; on the day of the announcement, long-end yields fell a few basis points, only to rise back the next day. Bessent stated that the scale could be increased further and mentioned the availability of the Treasury's general account.

Stanley Druckenmiller criticized in the Wall Street Journal that this is price management, with the error being greater than the apparent scale of $4 billion. Analysis indicates that over $100 billion in long-term bonds are still planned for issuance during the same period, meaning the impact of repurchases on net supply is limited. U.S. public debt has exceeded $40 trillion. Former officials stated that the Treasury is easing the long end while the central bank wants to tighten credit, which is akin to crossing a line.

The buyers are the Treasury, which wants to suppress the long end, and rate bulls fearing rates could rise to 5.5%, while the sellers are the global bond market seeking a fiscal premium. Funds are flowing from short-term bond issuance to repurchase long-term bonds, artificially bending the curve. The beneficiaries are the Treasury, which is set to issue long-term bonds soon; the Federal Reserve, which interprets yields as policy signals, is under pressure. This is a game of expectations before the speech, not a previously announced joint action.

Source: Public Information