I was taking my morning espresso on the terrace of my primary residence, watching the fog roll off the Pacific and half-listening to Bloomberg Surveillance in the background, when Pimco’s global fixed income CIO Andrew Balls said something so profoundly brave that I nearly dropped my saucer. He was looking at the US bond market, a market currently enjoying a beautifully serene, low-volatility slumber, and asking a simple question about the US Treasury. He noted that it was not entirely clear to him why the government would increase its purchases of long-dated bonds right now. It was a polite, British way of saying what everyone in my immediate social circle has been screaming into our screens for weeks. The government needs to take its grubby, stimulus-addicted hands off our perfectly comatose fixed income market.
Let me be clear. In this economy, the absolute last thing anyone needs is the United States Treasury stomping around the yield curve like a toddler who just discovered a drum set. We have spent the better part of a year carefully cultivating a bond market that does absolutely nothing. It is flat. It is quiet. It is, as Balls correctly identified, incredibly healthy. For those of us who manage serious capital, health is not measured by explosive growth, dynamic price discovery, or anything that might require us to update our models after lunch. Health is measured by my ability to lock in a yield, go to Jackson Hole for three weeks, and return to find that the price of my thirty-year paper has not moved a single inch.
This is what the working class simply does not understand about institutional finance. They look at a flatlining chart and they see stagnation. They see a lack of opportunity. But when you are moving billions of dollars for sovereign wealth funds and university endowments, a flatline is the most beautiful shape in the world. It means we have achieved perfect equilibrium. It means I can charge a two percent management fee for doing absolutely nothing, which is the foundational pillar of the American financial system. When the market is volatile, I have to pretend to work. When the market is healthy and sedated, I can focus on right-sizing my golf handicap.
And yet, here comes the US Treasury, aggressively buying up long-dated bonds like a retail day trader who just discovered leverage. Why? What possible purpose does it serve to inject liquidity into a system that is perfectly happy being completely dry? Janet Yellen and her department seem to operate under the delusion that the bond market exists to fund government operations or manage the national debt. This is incredibly naive. The bond market exists so that people like me do not have to trade equities, a terrifying asset class where prices actually change based on whether a company is profitable or not.
I read an analyst note just yesterday that suggested the Treasury’s interventions were necessary to ensure smooth auction functioning and maintain a dynamic secondary market. I immediately threw my iPad into the ocean. We do not want a dynamic secondary market. Dynamism implies movement, and movement implies risk, and risk is something that should be entirely borne by the middle class, not by people who wear fleece vests indoors. The entire point of fixed income is right there in the name. It is fixed. It is supposed to be broken, tamed, and bolted to the floor.
If you want volatility, go buy a cryptocurrency or start a small business. Leave the thirty-year Treasury bonds to the professionals who appreciate the subtle art of capital preservation through sheer, unyielding inertia. When the government artificially stimulates demand at the long end of the curve, they are stealing our peace of mind. They are forcing us to look at our screens. They are threatening the delicate ecosystem of portfolio managers who traditionally leave the office at two in the afternoon on Thursdays.
True market health is achieved only when the line on the screen is so flat that our summer interns assume the terminal is unplugged.
Barrows is exactly right, and it is a sentiment shared quietly in the dark, mahogany-paneled rooms where real decisions are made. Just last week, I was having lunch at Le Bernardin, discussing basis points over a ninety-dollar plate of sea bass, and the mood was universally grim. We were all looking at the Treasury’s issuance schedule and wondering why the government is so intent on waking up a patient that is resting so comfortably. One of my colleagues, a man who has not made a discretionary trade since the Obama administration, was visibly trembling. Every time the Treasury announces a new buyback program or shifts its duration targets, they are sending a jolt of electricity into a corpse that we have spent years carefully embalming. It is an assault on our way of life.
It is completely unnatural. Consider the thirty-year bond. A thirty-year bond is not an investment; it is a financial heirloom. It is designed to be purchased, locked in a digital vault, and ignored until my unborn grandchildren are ready to inherit the principal. When the Treasury starts meddling with the long end of the curve, they are disrespecting the sanctity of that generational timeline. They are introducing entropy into the only corner of the universe that is supposed to be immune to it.
Contrast this reckless behavior with the steady, comforting presence of Jay Powell. Powell understands the assignment. When he speaks, he speaks in a deliberate, monotonous drone specifically engineered to soothe the bond market back to sleep. The Fed knows that the ultimate goal of monetary policy is to create an environment so predictable that an algorithm could run it, allowing the human beings involved to focus on more important things, like offshore tax structuring. Powell is doing his part to keep the patient sedated, but the Treasury keeps sneaking into the hospital room to bang pots and pans together.
The ultimate casualty of all this government intervention is the concept of shareholder value, or in our case, bondholder serenity. We are constantly told that we need to be agile, that we need to adapt to changing macroeconomic conditions. But I did not get into fixed income to be agile. I got into fixed income because I possess the emotional range of a stalactite. I excel in environments where the only variable is how much compounding interest I can extract from a completely inert pile of capital. The Treasury is trying to turn a gentleman’s game of patience into a frantic, undignified scramble for yield, and it is frankly insulting to watch.
We are the bedrock of the financial system. We provide the invisible, unmoving foundation upon which actual, risky businesses fail. Without our steadfast commitment to doing absolutely nothing with trillions of dollars, the entire house of cards would collapse. We do not ask for much in return. We just ask that the line on the screen remains horizontal.
So I am making a small, reasonable request to the United States government. Please stop. Stop buying long-dated bonds. Stop trying to inject life into a market that has finally achieved the sweet, dreamless sleep of low volatility. Let Andrew Balls and the rest of us enjoy our healthy, unmoving charts in peace. The economy will be perfectly fine if the bond market spends the next decade in a medically induced coma. In fact, it is the only way any of us are going to get any rest.