The optimal way to bail out breaking Treasury basis trades

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Financial Times 3d ago

The optimal way to bail out breaking Treasury basis trades - Financial Times

Quick Summary:

This eliminates the need for the Fed to specify when it will begin selling bonds and allows it to keep helping with market function for as long as needed, without inadvertently generating any signal about the stance of monetary policy.

The obvious rejoinder to this is to point out that this is basically a hedge fund bailout facility — transforming an implicit assumption that the Fed would step in if Treasury markets are breaking into an explicit, formal promise.

A primary advantage of the Fed taking this hedged approach to bond-buying is that it avoids the need to pre-specify an unwind date for the policy.It has been argued . . .that an important imperative for market-function bond purchases is that they be clearly distinguished from monetary-policy-motivated purchases.