Citrini: "Treasury-Fed Agreement" May Create Conditions for 30-Year Treasury Rally

Odaily News, Citrini Research stated that as the U.S. Treasury and the Federal Reserve strengthen coordination, the government may shift more toward short-term debt financing, reducing the supply of long-term U.S. Treasuries, thereby creating conditions for a rally in 30-year bonds. The research firm believes that changes in U.S. banking regulation, Treasury debt management, and Federal Reserve balance sheet policy are converging, a framework that could be termed the new "Treasury-Fed Agreement."

Under this framework, the Federal Reserve would shrink its balance sheet while commercial banks expand theirs. As the government reduces long-term bond issuance and shifts more toward Treasury bills, banks would absorb more short-term government debt. Citrini stated that reduced supply of long-term Treasuries could help push long-term yields lower. The firm advises clients to bet on 30-year Treasuries outperforming 5-year notes, meaning the yield spread between the two would narrow.