Homework #4
[25/08/26]
This is a brief one, but a crucial one.
I’ve read a lot about US Treasury, funding, refinancing and basis over the past week. I was a complete beginner before this, other than occasionally tuning into the QRA bulletins, but always with a cheat-sheet at hand. This week, I’ve tried to learn more about the mechanics of the system and delve into why we we seem to be at panic stations, despite the phrase ‘drop in the ocean’ appearing in most numerical write-ups since Bessent’s announcement.
As always, I have no affiliation to Andreas Steno Larsen. I did (many moons ago) subscribe to Steno Research whilst trading at a bank, however he has now moved on from this venture and and the LinkedIn banner requires a customary wince. Nevertheless, it’s quite an art to make this very dry subject easy to understand, without diluting it too much. The basis trade, the current focus on long-end liquidity and the demographic shift of bond buyers is something everyone is quickly coming to understand - I think this 5min article is a great way to get there.
Enjoy!
[Edit]
A great read in the WSJ from Stanley Druckenmiller on the zoomed-out consequences of Bessent’s actions and what the Treasury and the Administration should, in fact, be doing to assuage markets.
https://www.wsj.com/opinion/let-the-bond-market-speak-81529d74?st=iPhDzQ&reflink=desktopwebshare_permalink