Saturday, April 4, 2026 
How the Fed Will Ease Rates
The Treasury is soon to make a stunning announcement.
In my post from April 19th, Stormy Weather, I noted that the fed can drive rates lower by driving Treasuries higher.
This outlier move in Treasuries has been a central theme in these pages. Except for one thing. I never revealed the catalyst. What will be the catalyst? The Quantitative easing they announced in their 300 billion Treasury buy back plan has been shrugged at. To you, my readers, I will now reveal the catalyst.
Often when I explain what a catalyst will be, I do it by taking a page, out of our history.This article from November, 2001 from the New York times talks of what the Treasury Department was up to way back in 2001. History doesn’t repeat, but it often rhymes.
The Treasury Department’s decision to stop selling 30-year bonds could help push longer-term rates lower for reasons that have less to do with the economy than with the mechanics of the bond market. With no new 30-year bonds, more investors who want to own long-term bonds backed by the government will buy the Treasury’s 10-year note, which influences the interest rates on home mortgages. The added demand will push the price of the 10-year bond higher, and the yield, which moves in the opposite direction, lower. With the 10-year rate and related rates falling, mortgage rates will fall, too.
The Treasury Department will stop selling the 30 Year, which will push up demand for the Ten Year, driving rates lower. Is the strength in the housing index anticipating this? Driving mortgage rates even lower would allow a massive refi and write down cycle in residential mortgages. Just what the economy needs, to finally take flight again. Then what happens? They’ll do what they did then. Offer the 30 year for sale again. Same cycles, different players.
I wonder when they’ll announce it? During the market? After? Before? Who knows? Whenever they do, it will be a shock to everybody. Everybody but those who read me. Mr. Volatility.
Peace
Mr V. you see it all. It is like you have new eyes.
Comment by TUKOTI — April 23, 2009 @ 4:38 am
so does this mean not to short stocks right now? once they announce this will equities shoot up higher?
Comment by jason — April 23, 2009 @ 7:40 am
certainly possible, and this is original thinking from what I can tell. too early yet to be very bearish of treasuries. charts don’t lie. plus when they do finally roll over, they’ll be a sell for years, maybe decades.
Comment by matthew herrick — April 23, 2009 @ 7:44 pm
where do you see the S&P heading if and when this does happen.
I think you’re right about this and do you think this will come after the stress test are revealed?
Comment by A — April 23, 2009 @ 8:57 pm
sorry, i love your blog but i’m just no familiar with Treasuries.
If like you said the Fed will try to drive Treasuries UP to get interest rates down does this mean that the TNX will go down? or will TNX go UP as Treasuries go UP.
i’m trying to find weather if Treasuries go UP does stocks go down?
thanks!
Comment by A — April 24, 2009 @ 8:24 pm
This is an interesting post given the massive amount of 30 yr bonds that have been auctioned to fund the government’s obligations.
How will the Treasury fund these promises if they stop selling the long bond? Where is the money going to come from?
It would seem with all of the spending taken place over the last 9 years that the Treasury will try to sell a 50yr or 100 yr bond. Its not like tax receipts are rising.
Comment by Joe — April 26, 2009 @ 5:46 am
Like in 2001, they will suspend sales of the 30 year. The safe haven will then be the ten year. After the Ten Year is squeezed higher, driving rates lower, the fed will then offer the 30 year for sale again. Same game. Nothing changes.
Comment by Mr. Volatility — April 26, 2009 @ 12:37 pm
very very cool idea
i am not familiar with these products a lot but i beleive its THE clue
if the markets hit new new low as eg 5000 dow up to june to sept max as i beleive then out of the blue they will do it
i love your site mv
Comment by solon — April 26, 2009 @ 10:56 pm
what will happen if they start selling 50 year bonds?
what would this mean and do to the equities market?
Thanks.
Comment by jason — April 28, 2009 @ 12:03 pm
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