US Treasury Secretary Janet Yellen firmly rejected an accusation from the economist Nouriel Roubini that her department has manipulated the issuance of Treasury securities in a way that lowers real borrowing costs across the economy.
In an interview with Bloomberg News, Yellen said Roubini’s argument, laid out in a paper published Tuesday, “suggests a strategy that is intended to ease financial conditions, and I can assure you 100% that there is no such strategy. We have never, ever discussed anything of the sort.”
The paper echoed a line of attack that several Republican politicians have recently leveled at Yellen. It highlights a move by the Treasury in November to temper a ramp-up in issuance of longer-term securities, relying instead relatively more on short-dated bills. They argue that this was done to hold down long-term borrowing costs, aiding the economy in the run-up to the November election.
That argument hasn’t had traction among bond dealers and strategists, and the Treasury official who oversees debt issuance, Joshua Frost, highlighted this month that the department’s actions were within the scope of market participants’ expectations.
Roubini and his co-author Stephen Miran, who served in the Treasury under President Donald Trump, estimated that the Treasury’s move last fall lowered 10-year Treasury yields by a quarter of a percentage point — roughly equivalent to the impact of a full percentage point reduction in the Federal Reserve’s benchmark rate.
“Treasury is dynamically managing financial conditions and through them, the economy, usurping core functions of the Federal Reserve,” Miran and Roubini wrote.
Ten-year Treasury notes are a benchmark for many other obligations, including mortgage rates, amplifying their economic impact.
Separately, a senior Treasury official criticized the Roubini paper on several levels, including factual mistakes about the volume of Treasury bill issuance over the last year.
The official, who declined to be identified, said the calculation of how much issuance was shifted out of coupon-bearing securities to bills was incorrect in one respect, and misleading in another.
The number provided in the paper, the official said, is based not on actual issuance but on outdated predictions from the Treasury Borrowing Advisory Committee (TBAC) — an outside panel of market participants that counsels the Treasury. It also left out the second quarter of this calendar year, when tax revenue allowed the Treasury to pay down bills by about $300 billion.
Miran, in an emailed response to questions, said the TBAC estimates are appropriate because those are the ones that get “priced into forward-looking markets.”
He said the reason for leaving out the second quarter was because that’s when the Treasury has a surge of revenues due to tax due dates, and bill issuance naturally contracts. Miran said he and Roubini didn’t claim the Treasury was being activist in its issuance in that quarter.
Frost, the Treasury’s assistant secretary for financial markets, in a detailed speech this month stressed that the department issues debt in a “regular and predictable fashion as part of our strategy to borrow at the lowest cost over time.”
Regular, Predictable
Frost also said the autumn slowdown in added issuance of 10-, 20- and 30-year securities amounted to roughly a 1% change.
Yellen, speaking in an interview on the sidelines of a gathering of Group of 20 finance chiefs in Rio de Janeiro, said Frost’s speech offered the best explanation for the department’s approach.
“My own experience with Treasury policy and debt issuance fully accords with the principles of regular and predictable that he outlines there,” she said.
