What's Behind the Big Surge in US Government Bond Yields

0:00Hi, I'm Tom Keane, inviting you to join me for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Swini, we bring you complete coverage of stocks, bonds, commodities, even crypto, all the information you need to excel in the markets. And I'm Alexis Christofferis, listen to us for essential conversations with the smartest names and economics, finance, investment, and international relations. That's the Bloomberg Surveillance Podcast. Subscribe today on Apple, Spotify, or anywhere you listen. We have some really exciting guests lined up, have some really great conversations planned,

1:04so go ahead and get your tickets. You can find those over at Bloomberg.com, forward slash odd lots, or click the link below in the show notes and come and say hi when you're there. Bloomberg Audio Studios. Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alley. And I'm Joe Wasntel. Well, Joe, we are still at Jackson Hole, where the official theme of this year's symposium is financial innovation in payments. However, the unofficial theme has to be what the heck is going on with bond yields and the Federal Reserve, because this whole meeting is coming against a backdrop of higher yields, particularly at the long end. A new Fed chair seems to want to make a mark on the Fed and has started all of these different

2:06task forces to look at things like comms and balance sheets. And then of course, we also have a Fed that seems to kind of maybe be operating at cross currents to the US Treasury, given that the Treasury is now buying back longer dated bonds and seemingly suppressing longer dated yields. There's so many different dimensions to what you described, right? So there is the formal technical thing. There is the sort of relationship between the Fed and the Treasury. There is the new things going on inside the Fed. There's obviously the warmth in the economy. By the way, the sun just came out. We're recording outside. It has been rainy and cool all day. It's out suddenly, out hot again. Maybe that's a sign. Anyway, that's why it's fun to be in Jackson Hole, though. There are all kinds of different people we can talk to, including people who sit perfectly at this intersection of all the things that we're talking about. That's exactly what I was going to say. So the guest for today, truly the perfect guest, someone who's able to sort of synthesize the macro and what's going on in the bond market, as well as some of the operations of the

3:06actual Treasury market. So truly the perfect guest, we're going to be speaking with Darrell Duffy. He is, of course, professor of finance over at Stanford University. So Darrell, thank you so much for coming back on all plots. Tracy, Joe, great to be back. Thank you. Is there a connection between higher bond yields and the payment system? Basically, why are you here? Well, there can be. In March of 2020, when the markets became dysfunctional, the Fed had a step in and dig out the balance sheets of the largest dealers to keep the bond market moving, and bond yields jumped and were very volatile. The last time we talked was also a Jackson Hole, and we talked about this relationship between just the sheer volume of public debt that's traded these days and the sort of like scarce dealer balance sheet. And this is like, you know, often when people talk about the size of the debt, they talk about maybe like debt to GDP or something like that or whatever. This is like what you focus on then and some of your work takes it from a different angle. Yes, talk about the volume, but just sort of the pipes that we have to run it through.

4:10That's right. And, you know, after that event in 2020, I said it would happen again. Dealer balance sheets would get clogged again, but even with massive amounts of trading we're seeing today, the dealers have more space yet. Could be capital regulations are not as strong. Could be the dealers have recapitalized, but they're definitely in force. I definitely want to talk more about that, but just on a basic level, when you look at yields on something like the 30 or above 5%, I know they've come in slightly today following the Chairman's speech. But when you see a yield at that level, what do you think? What is it telling you? Well, if I'm the Secretary of the Treasury, it's telling me that the United States is spending a heck of a lot on interest expense and I need to do what I can to get those yields down. The question is, what can the Treasury Secretary do? As an economist, I run the following thought experiment. As Tracy, I would convince you, there's no inflation risk.

5:12Inflation is as indicated in today's markets is pretty stable going forward. The sovereign is not going to default. You are, let's say, a hedge fund, a macro hedge fund. You have 20 billion of the ten years. And I wish I could go on. And I'm calling from the Treasury Department and I'm suggesting that you could take another ten. There's space on your own balance sheet to do that. Now given the conditions that I described for the safe bonds, why wouldn't you? The reason is you already have what you chose to have at 5.3%. And in order to get you to buy ten billion more, you need a higher yield to compensate you. The foreign central banks, they have had what they need for a long time now. They don't, they're not buying more. Foreign investors generally are not keeping up with the size of the bond market. So it's the discretionary investors, mutual funds, hedge funds, banks, insurance companies,

6:13pension funds, that are yield sensitive and are being asked to take more of a pretty safe asset, but they're not going to do it unless they get more yield compensation. It's an interesting way to think about it. So in Tracy's proverbial hedge fund, she has the 20 billion dollar allocation to Treasuries. But no one's paying Tracy just a whole of Treasuries, right? So she presumably has a lot of other assets, risky assets. Maybe she's been in Nvidia. I thought the best asset. Maybe she's been in Korean ship stocks or all the other things. When we think about the pricing though, to what extent doesn't make sense to think about a Treasury bond being is in competition for other theoretically investible assets. And when all those are flying to the moon or many of them like we've seen, does that have a sort of reverberation onto the risk free asset? Sure it does. And it's other bonds included in that. The hyper scalers have famously been demanding a lot of investment by bond investors. And it's all piling on. But the biggest culprit is our governments, generally, not just the US, but especially

7:17the US. And government deficits and debt to GDP are spectacularly high and there's no end in sight. So this piling on effect, I think it's mainly in the bond market. Debt to GDP ratio is no end in sight, et cetera. Certainly, that seems right. People could have said that five or six years ago. Well, they could have said that 2018, 2019. And they said it for years about Japan and just rates kept going lower. Now they're going higher. But they said they kept going lower. What is it? What changed? Like, you could have told this story 10 years ago and you could have laid out the demographics. You could have talked about the lack of political appetite to cut spending, et cetera. What changed fundamentally such that we got this reversal? OK, so let's go back even further to when the IMF said 60% debt to GDP is the red line. Yeah. You should not want to go beyond that. And if you do, it's at your own risk. That number just kept getting higher and higher for all major governments.

8:18Yes. And it's now is also at 100% debt to GDP. So what's changed is the sheer volume of government debt relative to GDP. It marches on and on. 10 years ago, it wasn't anywhere near 100%. And the treasury market was, let's see, if I recall, about 18 trillion. Now it's 31 trillion. So it's just volume. It's not, I mean, we, as Ken Rogoff remarked lunch, there's a lot of regression to the mean in terms of long-term yields and things come and go. But what's been coming is more and more bond debt. Yeah, can you say more about this idea of competition with hyper scalers? Because I see some people seem to take it as a given. Like the hyper scalers are issuing so much debt into the market, particularly longer term debt that like it obviously has this crowding out effect. But then I see some other people and they'll be like, oh no, the buyers of US treasuries are different to the buyers of investment grade bonds. And there's no way they're in competition with each other.

9:19But to me, it feels like the overall theme of the bond market right now is this additional duration that investors have to absorb. No, it's absolutely right. And I wouldn't describe it as the hyper scalers crowding out the treasury department, but rather the other way around. Oh, interesting. Yeah, I mean, 32 trillion and rising at 2 trillion a year, there's nothing. I mean, it is true. Hyper scalers are perhaps going to hit a trillion of debt in the next couple of years. That's small compared to the treasury department. So I really think it's the treasury and not just the US treasury for finance ministries and legislatures around the world that are stuffing a lot of bonds into the hands of the same investors. Yeah, pension funds, insurance companies, they'll buy all of this and they make trade-offs. And we see what's happening to yields. I just thought of a great idea for a sci-fi story in which essentially the giant government debt loads, collapse governments and these AI-building companies become the new sovereign.

10:24That's what I've been saying. So that's in Margaret Atwood's books. It's the companies basically replace the governments and you live in a corporate compound and everything is provided to you by the tech company. And the clawed yield and the gem in the eye yield. And those will be earned to risk free. But I want to get back to one more thing. So I get all of this what you're saying. One word that hasn't come up though is inflation. And so when I think like a big difference between seven or eight years ago and now is that there is continued to be high inflation years above target and it turned out it was even a very aggressive rate hiking cycle. It didn't get it back to target. Why couldn't it simply be that the reason for higher rates is the series of higher short-term rates is expected because there are a lot of inflationary impulses among them may be spending. In the long run inflation and bond prices go together, fiscal theory of the price level, meet John Cochran's book or maybe you have.

11:26We've never heard John on the podcast. We really should do that. He would be perfect on this question. But today if you look at forward implied inflation numbers coming from real and nominal bonds, they're not showing alarm bells at all. It's true that we've had a significantly more inflation than the Fed would like to see for the last five years. And as Kevin Worsh remarked this morning and others have spoken, the last part is a lot of work remaining to be done by the Fed. So yeah, inflation is a concern. But I don't, my view, I don't think that's what bond investors that are thinking about the 10s, 20s and 30 years, what's foremost on their mind. I think they're looking at the supply relative to the demand. And again, foreign central banks have had all that they need and they're not buying more. And it's mostly domestic discretionary investors that are being asked to take this additional supply and they just need more compensation.

12:30Hi, I'm Tom Keane inviting you to join me for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Swini. We bring you complete coverage of stocks, bonds, commodities, even crypto, all the information you need to excel in the markets. And I'm Alexis Christopheres. Listen to us for essential conversations with the smartest names and economics, finance, investment and international relations. That's the Bloomberg Surveillance Podcast. Subscribe today on Apple, Spotify or anywhere you listen. This is kind of a cliched question, but that deluge of debt issuance, I guess. What does that actually mean for central bankers? Because when you come to a conference like this, it feels like that's the obvious thing in the mix and you hear little whispers of words like fiscal dominance.

13:30But no one actually talks about it in any direct way. Yeah, I think the Fed is studiously avoiding fiscal dominance. It would not entertain a discussion with the Treasury regarding yield curve control. The last time that happened, it was a very acrimonious end in the 1950s with the Treasury, the Fed Treasury Accord. People think the word Accord means they had a good agreement. It actually means they had a really, really rough argument. Interesting. And the Fed supplied some support to the bond market, kicking and screaming for a short period of time and then got out of the business of yield curve control. And it won't want to revisit that. The FOMC will do everything possible not to get into fiscal dominance. I think that's my reaction. So one of the reasons we wanted to speak to you is because you've done work on the impact of Treasury buyback programs in particular. And of course, I guess was it a week or two ago, I've lost all sense of time.

14:32But recently we had... Over the last two weeks. Yeah, we had Scott Besson announcing that he was increasing the size of the Treasury's buyback program. He cited liquidity concerns, but as far as I can tell, things looked pretty normal in the Treasury market at that moment in time, what do you think his thinking was? Well, from his remarks, he seemed to think that yields were too high, irrespective of liquidity concerns. And that in his view, market participants should have understood that a lower yield for the U.S. Treasury securities would be appropriate. And he said that he was signaling. He used the word signal, signaling to the market, his belief that Treasury yields were too high. Now, I think we subsequently can see that while the market reacted quickly to that news, it reversed itself pretty quickly afterwards. Part of that related to the firepower of the Treasury Department relative to the bond market.

15:33I'm sure you remember James Carvell's famous comments about the power of the bond market. Anyone who has ever written about the bond market has used this quote as the lead for a column at some point, myself included. Did you see what Trump said? The other way. Oh, yeah, about military intervention in the bond market. So I don't know, maybe James Carvell wasn't thinking fully that the bond vigil had not, James Carvell had not considered that the bond vigilantes could be bombed into submission potentially. I don't know if he thought about that. Well, even the mighty U.S. Treasury Department is not as powerful as bond markets when it comes to setting yields. We also saw in the yen intervention some signals that perhaps first we have a more activist Treasury Department than we've had in the past in terms of willingness to engage in financial market trades. And secondly, that there might be some concern that if things don't go well in Japan and the Japanese central bank needs to unload treasuries, that that would add on to this piling on that

16:38we just discussed and cause problems for U.S. Treasury markets and the interest expense of the U.S. government. So my impression, maybe I'm reading too much between the lines, is that Secretary Besan wanted the market to understand that the Treasury Department wasn't just going to sit there idly and take that. They wanted to be involved. I feel in classical discussions of interventions, they seem to work better when they are not volume bound by what by level bound. And when it seems often the case when they're level bound, you don't even have to spend anything. So you say, okay, 5% is our line in the sand. And in theory, does the Treasury have, it could just issue two-year bills and just take out the thirties. With that, I mean, if best it very strongly feels that it's like these prices just do not on some fundamental level, it do not make sense. But he just say, you know what, we're going to issue only two years or five years or whatever. We're going to buy 30 years any time to get to 4.99%.

17:39And if you're a bond vigilante and you're thinking it's going to go, you're shorting, debt, you're going to get badly burned. Well that would be formula for increasing the interest rate, expense volatility for the U.S. government because your debt maturity is going to be shorter and shorter. And you're going to be rolling over that debt in auctions that will reflect current market conditions and a larger and larger fraction of your interest expense is going to be realized on a day-to-day basis. So that's, U.S. is still in pretty good shape, it has an averaged debt maturity of about six years. I also have the view that governments are just not powerful enough to control these trends with their own resources. Let's go back to the attack on the British pound that in which Scott Besson had a role in 1992 when he was working with the Soros hedge fund.

18:42The British government was simply unable to defend the pound and it should never have tried. It used up a lot of its firepower that way. And so even as I said, the U.S. Treasury Department, if markets decide that yields are going to be at 6%, the U.S. Treasury Department is not going to be able to have a strong say in that, not without taking a lot of risk. What is your research actually say about, I guess, the impact and duration of Treasury buybacks? Because this isn't the first time the Treasury is doing this. There's plenty of empirical instances that you can base your research on. What have you found previously? Well, I'm working right now with two economists at the Federal Reserve Bank of New York, Michael Fleming and Norseckar, and with my PhD student at Stanford, Sam Wichely. And we are using the buyback data as well as turnover data on dealer balance sheets to understand the benefit of the original purpose of the buyback program, which is to go out

19:43and clean up the leftover bits and pieces of old Treasury notes and bonds. Odd lots. But this was stuff that actually wasn't really trading anymore, right? Yeah, it was clogging up dealer balance sheets and trading at lower prices then would be suggested by a smooth yield curve. And so the idea was, as explained by then Assistant Treasury Secretary Josh Frost, let's be regular and predictable and clean up these bits and pieces, make the Treasury market more liquid by replacing those with new liquid treasuries and implicitly make some money for the U.S. taxpayer by low sell high. And that's a good program. Our research shows, well, it's in progress. You'll see the paper eventually. Well, I was back out. Well, yeah. You and your PhD student can come back on for that. It shows that that's effective. And by the way, I think it's totally legitimate that a Treasury Secretary or Treasury Department would step into the market and use the buyback program for unanticipated needs.

20:45So for example, going back to March 2020, it's totally legitimate that a finance ministry or a Treasury Department would say it's our bond market, it's dysfunctional. It benefits us to step into that market and not leave it entirely to the central bank. You may remember the Liz Trust budget. At that time, the Bank of England faced this dilemma. It was tightening its monetary policy. And at the same time, it had to buy guilt. And so it made a very clear distinction. And soon afterwards, sold those guilt. It's easier if the Treasury Department is involved. In the case of the UK, it indemnified the Bank of England for the losses that it might have incurred. And in the case of the United States, the Treasury Department could use its own buyback program to add firepower. And that could be done on the scale of hundreds of billions, not the mere four to eight billion that the Treasury Department has been speaking about over the last couple of weeks.

21:45But from your perspective, in the last few weeks, there's nothing in the sort of classical measures of liquidity that we're out of work. No, nothing. Nothing, you know, dealer balance sheets seem to be in good shape. OK. Bit of spreds, market depth, or in normal range. A new chapter in global growth is being written. And much of it is happening in Africa. Africa needs to invest. There are deals to be done and business to be won. I'm Jennifer Zabisajep. Every week on the Next Africa podcast, we track capital flows and political shifts shaping the continent's future. The digitalization of Africa is going to power its growth. Reading the world of something like HIV is possible. Opulation growth is so enormous in Africa. Listen to Next Africa on Apple's Spotify or wherever you get your podcasts.

22:47I mean, one way to think about it is, it's not that different from QE or Operation Twist as some of these things that the central bank did in the 2010s to sort of change the shape or the slope of the yield curve. But that was in a time of below-target inflation and central bank trying to cost things to re-accelerate. But on some level, does this look like efforts that classically would, you might expect to see in an environment where the central bank is trying to boost inflation? When you say this, meaning what- The sort of the expanded buybacks, the attempted to press the long end, that sort of looks operation twisty, but that, you know, there was an environment where we were sub-2% to the frustration of the central bank. Yeah. So, well, first of all, I don't think this is stepping on the toes of the Fed. And I do think that it feels like a twisty type of operation, but a micro twist.

23:48It's okay. So, I think it's okay to say that it's a little bit more, you know, a few billion dollars, other than the signaling, a few billion dollars is just not kind of moving the needle. Micro twist sounds like one of those terrible alko pops of like the early 2000s, right? Yeah. Like, I was just having- I was trying to make my interest. Okay. Well, okay, but if the Treasury is issuing more short-term debt, which it is, does that solve the long-end yield problem or does that just end up shifting the issue into money markets? Well, it does shift issuance into bills, and that's how buybacks are working with these particular buy-back, or these particular operations. And yeah, so it means, as I mentioned, there's shorter and shorter debt maturity, but no alarm bells yet. The US is not out of historical norms. It's actually a bit longer maturity, average maturity than normal. And you know, I'm not that worried yet. I mean, if they were to continue, and really, the real action is a new issuance, not in

24:49buybacks, if they were to continue to keep the issuance of long-term securities at current levels as they have been and have forecasted that they will, if they were to keep doing that for years, then the piling up of short-term debt would eventually be notable, and it would cause concern. All right. So, you know, I talked in the beginning of all these different things that are happening at the moment, but one of them is the new Fed Chair and the task forces that he's created, including one that's looking at the Fed balance sheet. Can you maybe put your Kevin Warshat on for a second, and when he says he wants to shrink the size of the Fed's balance sheet, why is that desirable? Well, first, I'm not Kevin Warsh, so I'm not going to get inside his head, but judging from his speech around the G30 meeting last year, which in which he was most clear on his views here, I think he worries that the Fed looks like it's too active in financial markets,

25:52that its footprint is too big, and that it has the image of possibly getting into fiscal policy. And so, he wants to say completely, my interpretation, he wants to say clear of having created that impression, and a smaller balance sheet would signal that. I think the more interesting question is, how could you do it? Yeah. Because it's easy enough to sell bonds on the asset side, but it's not easy to extinguish the liabilities on the other side of the balance sheet. That's right. When we think about the Fed balance sheet, everyone always thinks about assets, because we've gone through years and years and years of QE, and no one ever thinks about liabilities. But those two things have to be in balance. You can't shrink the asset side without shrinking the liabilities side. You reach that conclusion trace, you're faster than almost anyone that I talked to. I do. So if you just do adding up, if you want to reduce the assets, you have to reduce the liabilities one for one, let's take them in turn.

26:52You've got the Treasury General Account. I don't think the Fed's going to call the Treasury and say, would you take some money out of your account at the Fed? And you've got paper money. I don't think the Fed is going to put out advertisements saying, please, please Americans and everybody else out there in the world that has paper money, would you mind turning it in so that we can reduce that liability? So the only significant possible reduction is in reserves, meaning the deposits that commercial banks have at the Fed. And there is scope for doing that, but not with the current tools that the Fed has. Could there be a regulatory change that would be necessary? Could we wait years and years? With basically no balance sheet. And then, you know, then 2008 head and suddenly there's all these reserves. Why can't we go back to what would be the challenge to go back to 2000? We just have that back to ours. Right. So what would it take if for some reason we thought this is very important? We want to get back to the real good old days of Fed balance sheet side.

27:53What would it actually take from a regulation perspective to get to just a 2005 looking banking system? It's not going to happen, Joe. Because back in 2005, liquidity regulations were much different. Okay. And the Fed didn't pay interest on reserves. So the banks were not in the least interested in holding reserves because why would you hold reserves getting zero interest and you could invest the money in money markets and under a full market rate? Today in order to control inflation, the Fed is forced to pay an interest rate to banks that's roughly the market rate. And so, you know, if you ask a bank, well, why don't you give up some of those reserves? They might say, well, why? They're so useful for meeting liquidity regulations. They pay a full market interest rate. They're perfect for payment services. What's not to like? It's the Swiss Army and I for finance. We're not going to give those up easily. And right here in Jackson Hole in 2017, Verolacharia and Raghu Rajan presented a paper describing

28:56a ratchet effect by which every time the Fed increases its balance sheet and adds reserves, the banks get addicted to having more of that extremely useful asset reserves and they're reluctant to give it up. And if you try to make them, markets get volatile and the Fed has to back off. So a lot has changed. What would be your recommendation if you were on this task force? I think it's Stein who's heading it. But you know, if War says I want to shrink the size of the balance sheet and we have this reserves problem, what would you do? It's Jeremy Stein, Raghu Rajan, the same economist that spoke here about the ratchet effect and Karen Dynan, all very noted, very credible, extremely wise and articulate economists. What they're going to do and what they're going to recommend, I don't know. But I think that they're going to take a very wide lens look at this. They're not going to look only at size. They're going to look at the composition of the assets. I predict that they will, and this is with no information from them, I predict that they

29:58will recommend reducing the quantity of long-term treasury securities that the Fed holds and replacing those with treasury bills in order to reduce the volatility of the Fed's interest expense. So for example, if you back the reserves one to one with treasury bills, then every time the Fed has to pay more interest to the banks to control inflation, it's getting more interest on their treasury bills one for one. Paper money, they could continue to hold long-term securities and I don't think the Fed feels good about having mortgage-backed securities. I think they're just going to let those roll off. So I think that could be in one area that they will get into is the composition of the assets. And on the liability side, it's hard to predict, in my own view, the Fed doesn't need to reduce the size of its balance sheet, but it should have the tools that would allow it to do that. Because if my hunch that this has politics around it is correct, the Fed never wants to

30:58be put into a corner by Congress over the size of its balance sheet without the tools that would allow the Fed to say, no, we're not going to increase our balance sheet as you would like us to do and by the essence that you would like us to buy. But rather, we can control our own balance sheet by reducing it if we need to. And those tools exist in theory, but they haven't been developed in practice by the Fed yet. They have been for other central banks. I have one more question and it's not really a question, it's more of a favor really. But can you convince Joe that the term premium is a useful concept? He doesn't believe in it. I think you believe it exists, but you don't believe that it's useful in any way. You're not going to defend yourself, Joe. I'm a simple man, I look at a 30 year yield, I think it looks like a 30 years worth of overnight rates, you just add them up and I just, you know, that's how it is, what I assume.

32:02And then everyone's like, no, but the term premium. And then they say, and then I say, okay, but what does it look like? Well, we can't really measure it and then all the models that we have to measure don't work, but trust us. This is why they say use, and then they say, and then they say, well, they need treasury investors need compensation for risk, to which I say, just treasury investors as if there's something special about it. Like, I really, I really struggle with it. So this is why we need a Stanford economist to straighten me out. Yeah, it's an easily measured concept. So it tells everyone the value of short term versus long term money and interest rates, but then decomposing it is the hard part. So you mentioned, you know, there's the path of expected short term interest rates that's built in, that it in itself reflects inflation. And then on top of that, there's a risk premium. And how to decompose that, you know, economists like John Cochrane we mentioned earlier, with Monica Piazzesi, have, you know, done some of the best work on that decomposition and it changes over time depending on one of the things that we just discussed earlier, which

33:04is the volume of treasury issuance that elevates the entire curve and it elevates it more in the future if you don't think that the fiscal deficits are going to go down. All right, Joe's going home from his podcast with Homework. I have to do some reading, yeah. A signed reading. All right. So Joe, that was great. I know we've been meaning to talk about the treasury buyback, so I'm glad we could get into that. I was thinking, you know, he mentioned the treasury general account. And I was thinking about the treasury account. And you always hear the stat that it covers five days of government expenses or something like that. And I always think about the headline saying, ordinary Americans, you know, half of ordinary

34:07Americans only have enough money to cover three months expenses. And then I'm like, what about the fed? What about the treasury? I mean, someone facetious. Sorry, what about the treasury? But like, it is kind of crazy, five days. Yeah. I guess it is kind of crazy. But, you know, just thinking I'll just issue more debt. I think the treasury account actually bombs the bond market. What happens to the treasury account? It is weird that we actually haven't talked about that quite very much, but such is life. We'll find the perfect guess to talk about it. Such as life in 2026. I thought that was really good. I actually did not fully understand previously why buybacks exist in the normal term. Yeah. Okay. So figure aside why there's the deviation from the typical schedule, why they exist in the first place. And this idea of it, like, what is the point of having these sort of off the run? So, you know, is the sub-27 year bond that's sitting out there that no one wants, whatever, that it just sort of makes sense to have a regular sweep of that. You know, they call it in crypto world. What? It's dust. So, for example, like a band and assets kind of.

35:09It's kind of like if there will be little flex of like 0.002 Bitcoin on like some wall or something. But because there's a transaction fee with all of them, you can accumulate it. You can accumulate this dust and it's not economical to move it off of them that create all kinds of issues and stuff. It's sort of similar. I remember, weren't there some startups at one point who are trying to like collect all the dust and roll it up into something substantial? The other thing I was thinking just about the buyback program now is, I mean, you almost have an issue with the reaction function of the treasury now. Yeah. If it's siding market liquidity in order to increase the size of the buybacks, but the treasury market seems to be operating pretty normally. Yeah. And then everyone starts focusing on the yield as Darryl was saying, like, oh, it seems like Vessent just doesn't think the yield is at the right level. Well, then suddenly you have this target that investors are maybe going to be watching

36:10for signs that the treasury is going to come back in. I think Vessent really just misses being a hedge fund. Like, he's like, no, this is like, this, this, the yield is too high. It's like an opportunity to buy, right? And like intervening in the yen and stuff. I think this is like, he's in his comfort ground when he's making moves like. Well, I will say as of the moment we're recording, he's probably above water on his treasury purchases. Well, I so I thought so too. Yeah. Except, so this is what I thought. I was like, oh, this is a good trade. Evidently, the purchase, this is what someone on two people on Twitter told me this because I thought that too. It must be true, too. The purchase is start September 9. So there was the announcement that came. I see. So had he anyway, but I had that same thought. Oh, it's looking like a pretty good trade now. All right, stay tuned for the Aalot's episode tracking Vessent's trade. But shall we leave it there for now? Let's leave it there. Okay, this has been another episode of the Aalot's podcast. I'm Tracy Alley. You can follow me at Tracy Alley. And I'm Joe Weissenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Irman.

37:10Special Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Luzano at Kevin Lloyd Luzano. And for more Aalot's content, you should check out our daily newsletter. You can find that at bloombrook.com-flash-aalot. You can chat about all of these things 24-7 in our Discord Discord.gg-slash-aalot-lots. And if you enjoyed this conversation, then please leave a comment or like the video or better yet. Subscribe. Thanks for watching. Listen. Gain insight on the innovators, disruptors, and tech-driven trends shaping today's complex economy.