Peter Tchir, a macro strategist at Academy Securities, believes that the U.S. Treasury's increase of long-term bond repurchase agreements to "at least $4 billion" per transaction is still a small-scale operation for the entire U.S. Treasury market. The U.S. currently has approximately $7.5 trillion in T-bills and $21.7 trillion in interest-bearing Treasury bonds, and Treasury repurchases alone are unlikely to sustainably alter long-term supply and demand.
Greater policy space lies in the Federal Reserve's balance sheet. The report estimates that the Fed currently holds approximately $426.5 billion in interest-bearing Treasury bonds maturing within one year and $779.3 billion in 1-3 year Treasury bonds; in the 10-15 year maturity range, the Fed's holdings already account for 52.1% of the total outstanding amount. The author calculates that if the Fed were to exchange these $426.5 billion in short-term bonds for an equivalent amount of 20-year or longer-term bonds, the scale would be equivalent to more than 15% of the total outstanding 20-year or longer-term Treasury bonds, accounting for more than 20% of the non-Fed's outstanding holdings. This Fed-led "Operation Twist" could significantly reduce the long-term supply that the market needs to absorb without expanding the nominal balance sheet.
