Yellen responds to "Dr. Doom" accusing the US Treasury of manipulating US debt: 100% guarantee there is no such strategy

In 2006, the "prophet of doom" Nouriel Roubini, who accurately predicted the outbreak of the U.S. subprime mortgage crisis, recently made shocking remarks again. A paper he co-authored accused the U.S. Treasury of manipulating the issuance of U.S. Treasury bonds to lower the actual borrowing costs of the entire economy. U.S. Treasury Secretary Yellen responded firmly to these accusations.

During the G20 finance ministers meeting in Rio de Janeiro, Brazil on Friday, July 26th local time, Yellen told the media,

"Roubini's paper released on Friday proposed a 'strategy aimed at easing financial conditions,' 'I can guarantee you 100% that this strategy simply does not exist. We (the U.S. Treasury) have never discussed anything like this.'"

Roubini's aforementioned paper is titled "Radical Bond Issuance and Monetary Policy Wrestling", which discusses how the U.S. Treasury uses radical bond issuance (ATI) to play the role of "invisible quantitative easing (QE)." The article argues that over the past year, ATI has been the main driving force in the market, causing a long-term debt gap of over $800 billion, lowering the yield of 10-year U.S. bonds by 25 basis points, which is equivalent to a one-time 100 basis point rate cut by the Fed or four 25 basis point rate cuts. This almost offset all of the Fed's rate hikes last year.

The media believes that the above views have not caused a reaction among bond traders and strategists. Joshua Frost, the U.S. Treasury official responsible for regulating bond issuance, emphasized earlier this month that the Treasury's actions are within the expectations of market participants. The Treasury issues bonds in a "regular and predictable manner, which is part of our long-standing strategy of borrowing at the lowest cost." Frost also stated that the issuance of 10-year, 20-year, and 30-year bonds will slow down this fall, with an increase of about 1%.

Yellen stated on Friday that Frost's speech provided the best explanation for the Treasury's actions. "My personal experience with Treasury policy and bond issuance fully aligns with his (Frost) outlined principles of regular and predictable issuance."

The media pointed out that Roubini's article echoed recent criticisms of Yellen by several Republican politicians in the United States. These criticisms focus on a measure taken by the U.S. Treasury in November last year, which slowed the increase in the issuance of long-term U.S. Treasury bonds and relied more on short-term notes. Critics believe that this was done to lower long-term borrowing costs and boost the economy before the U.S. election in November. In other words, to improve the image and gain votes for the Democratic government under Biden.

The refinancing report released by the U.S. Treasury in November last year showed that the Treasury slowed the pace of issuing 10-year and 30-year U.S. Treasury bonds, kept the pace of issuing 20-year U.S. Treasury bonds unchanged, and increased the issuance speed of nominal notes and bonds other than the 20-year bonds. At that time, Wall Street News mentioned that the Treasury's slowing pace of long bond issuance indicates that Treasury officials may be concerned about the surge in yields over the past few months Some views believe that the significant increase in long-term US Treasury yields in the previous month may lead to a slowdown in economic growth, with borrowing costs continuing to rise, effectively playing the role of the Federal Reserve raising interest rates