In a step that could limit upward pressure on long-term interest rates from bigger budget deficits and a reduced Fed balance sheet, the Treasury will break from a policy in place since 2009 and stop attempting to lengthen the maturity of the government’s debt.
This is seen as Treasury making an effort to avoid a yield shock, which is important for the health of the economy. Yields on longer-term Treasury debt serve as benchmarks for everyone from home buyers to corporate treasurers.
It’s probably also welcome at the Fed, which has begun to slowly reduce its balance sheet by not rolling over some of the maturing Treasury and mortgage-backed securities in its portfolio. Fed policymakers have gone out of their way to make the unwind as painless as possible for the bond market—and the Treasury’s new approach will help in that regard.
Read more in Bloomberg.