Morgan Stanley: US Treasury Larger Buybacks - FJElite
- We think additional UST liquidity buybacks and associated signaling buy time for the fundamental drivers of a steeper yield curve and lower rates to play out.
- We think Treasury funds these incrementally larger buybacks with T-bill issuance. Investors should not conflate this with a Maturity Extension Program or QE.
- We suggest investors maintain UST 7s30s steepeners and SFRM7M8 curve steepeners - the rationales for which don't rely on higher long-term yields.
- We suggest investors exit long USU6 basis positions as expanded Treasury buybacks reduce the tail risk of significant duration extension in the US basket.
- We think investor perception of this surprise action revived a weak-USD policy premium and point to further USD downside especially vs. CHF and AUD.