Hedge Fund Study on US Treasury Issuance Fuels Debate

Study Claims Treasury Stimulus Moderated Long-Term Rates

NEW YORK, July 26 (Reuters) - A hedge fund study has ignited a debate over the impact of the US Treasury's bond issuance last year, with some arguing that it effectively provided economic stimulus by moderating long-term interest rates.

Discrepancies in Estimates

The study, conducted by Traxis Partners, estimated that the Treasury's issuance of over US$2 trillion in long-term bonds in 2020 resulted in a reduction of long-term rates by about 10 basis points. However, the US Department of the Treasury has disputed this estimate, claiming the impact was closer to 5 basis points.

Central Bank Role

The debate has been fueled by the unprecedented role played by central banks during the COVID-19 pandemic. With interest rates at historic lows, central banks have been purchasing large amounts of government bonds to support the economy. This has raised questions about whether the Treasury's issuance may have diluted the impact of central bank purchases.

Market Impact

The study's findings have sparked concerns among some investors that the Treasury's issuance may have inflated the prices of long-term bonds and could lead to a market correction. However, others believe that the benefits of the stimulus provided by lower rates outweigh the potential risks.