Goldman Sachs MarketStrats believes that the U.S. Treasury's expansion of long-term Treasury repurchase agreements can indeed alleviate long-term pressure in the short term. Referring to the Operation Twist in 1961 and the maturity extension program in 2011, historically, policy tools have led to a 10-20 basis point decline in long-term interest rates. Goldman Sachs judges that,
this round, through repurchase agreements, adjustments to issuance maturities, and balance sheet management, a 20-40 basis point decline in long-term yields is also possible.
However, Goldman Sachs remains cautious about the long-term effects. The current rise in long-term interest rates is driven not only by technical supply-demand mismatches, but also by persistent fiscal deficits, inflation uncertainty, and a rise in the equilibrium real interest rate. The report also emphasizes that AI capital expenditures, data center construction, power infrastructure, and re-industrialization are also continuously driving up capital demand across society.
While Treasury repurchase agreements can alleviate the short-term supply of duration that the market needs to absorb, they are unlikely to change the overall trend of rising capital costs and a rising long-term interest rate.
