Citadel Securities reversed its bearish stance on long-dated U.S. government bonds, warning that the trade against them has become so crowded that any shift in direction could force a painful unwind, according to MarketWatch.
The warning comes at a moment of heightened focus on the Treasury market’s long end, where the 30-year yield climbed to its loftiest level since 2007 before Treasury Secretary Scott Bessent stepped in with an expanded bond buyback program, according to MarketWatch
Citadel Securities described the Treasury’s move as a form of Operation Twist rather than quantitative easing. Treasury is purchasing off-the-run bonds from dealers while financing those purchases through additional short-dated issuance, leaving the overall stock of government debt unchanged and system liquidity broadly neutral, the firm said. The effect is to reduce the duration the private market must absorb, putting downward pressure on long yields and flattening the curve.
The firm said the signaling effect may matter as much as the actual flow of purchases. The intervention indicates the administration is uncomfortable with elevated long-end yields and prepared to use debt-management policy to resist them, Citadel Securities said. It also drew a connection between the buyback expansion and U.S. participation in yen intervention, noting that Japan holds roughly $1.12 trillion in Treasuries — about 12% of reported foreign holdings — and that limiting the risk of forced Treasury sales by Japanese investors was a plausible motive behind Treasury’s willingness to support the Japanese Ministry of Finance.