Yield Curve Control is Not the Federal Government’s Biggest Concern

Written by Bryan Lutz, Editor at Dollarcollapse.com:

You hear a lot about managing the 10 and 30-year yield curve.

That’s because those numbers are generally used to measure the quality of a currency. The more people are willing to invest in any given country’s debt for a longer period of time, the more trustworthy the currency is – the more demand, and the more value.

So we’ve seen a lot of US Treasury Secretary, Scott Bessant’s effort go toward reducing the Federal Fund Interest rate to lower the yield curve.

At first glance, that’s what all this appears to be about…

Yield Curve Control.

Yield Curve Control is important because it measures the quality of the USD, but there’s more one more underlying issue that reveals the Federal government’s biggest concern.

For now, the narrative is leaning in to the supply and demand of the debt market to manage long-term yields.

Here’s what Bloomberg has to say:

“Investors are bracing for Treasury Secretary Scott Bessent to lean more toward shorter maturities in the government’s funding mix to keep down long-term yields amid a mounting debt burden.

Wall Street dealers expect Bessent to signal as soon as Wednesday, when his department releases a quarterly statement on debt sales, that issuance in the $30 trillion Treasury market will keep shifting in that direction…

…At issue for Bessent is how to tamp down long-term yields — vital for setting borrowing costs such as mortgage rates — even as the nation’s debt load climbs. He has focused on pushing down 10-year US yields. Around the world, demand for the longest-dated securities has been dimming, prompting debt managers from the UK to Japan to trim sales.”

If Bessant can raise the amount of T-bills being sold while lowering the amount of long-term treasury bonds sold, then he can increase demand for the longer-term treasuries. And that means, lower long-term, yields.

Lower long-term treasury yields are important for the average American because they lower the debt burden for everyone.

Here’s what they effect:

• Mortgage rates: Home loan interest rates are closely tied to the 10-year Treasury yield. When long-term yields rise, mortgage rates usually go up within days, because lenders base fixed-rate mortgages on the return they could otherwise earn from safe long-term Treasuries.

• Corporate bonds: Companies set their borrowing rates as “Treasury yield + a risk premium”, depending on their credit rating.

• Auto loans & student loans: These are also influenced by Treasury yields, since banks use them to price overall funding costs and risk.

• Municipal bonds: Local and state governments pay interest rates based on where Treasury yields are trending; Treasuries act as the reference “risk-free” baseline.

With all these implications it seems like the Federal government’s biggest concern, but it’s not.

What they’re really concerned about are interest payments on Federal debt.

By selling more short-term bonds, they are not managing the yield curve…

They are lowering the cost of the increasing the Federal debt. And then later, interest payments on the Federal debt. It is much easier to finance T-bills than it is to hold up the parabolic cost of debt the US government is now experiencing.

So yes, Bessent is managing the yield curve of long-term debt. But he’s also managing the Monster in the room – almost $1.2 Trillion in interest payments.