Federal Reserve should discuss rate cuts, says Academy Securities’ Tchir

Peter Tchir, head of macro strategy at Academy Securities, isn’t impressed. The US Treasury just doubled the size of its liquidity support buybacks for longer-dated government debt, and the man whose job is to parse these moves for institutional investors described the whole thing as “kind of mediocre.”

His bigger message: the Federal Reserve needs to start talking about cutting interest rates and explicitly remove hikes from the conversation. In a market where 30-year Treasury yields recently touched levels not seen since 2007, Tchir’s argument boils down to arithmetic. The government’s interest bill is ballooning, and Treasury buybacks alone aren’t going to fix that.

What the Treasury actually did

On August 19, the Treasury Department announced it would raise the maximum cap on its buyback operations for outstanding 10-year to 30-year debt. The ceiling moves from $2 billion to at least $4 billion per operation, effective September 9.

Markets responded immediately, if modestly. The 30-year Treasury yield dropped from roughly 5.26% to as low as 5.18% after the announcement. That roughly 8-basis-point move might sound trivial, but on trillions of dollars in outstanding debt, small yield shifts translate to meaningful changes in borrowing costs.

Still, Tchir’s critique has teeth. Doubling the buyback cap from $2 billion to $4 billion is a significant percentage increase in the program itself. But relative to the scale of Treasury issuance needed to fund growing federal deficits, it looks more like a band-aid on a broken leg.

The case for rate cut talk

Tchir’s core argument is that the Treasury can’t shoulder this burden alone. The Federal Reserve, he contends, needs to signal that rate cuts are on the horizon and definitively take further hikes off the table.

The reasoning isn’t complicated. When the Fed holds rates high, the cost of servicing existing government debt stays elevated. Every Treasury auction becomes more expensive. And as yields on long-dated bonds push toward multi-decade highs, the fiscal math gets progressively uglier.

For context, 30-year Treasury yields at 5.26% haven’t been the norm for nearly two decades. The last time yields were consistently in this neighborhood, the housing bubble was still inflating and nobody had heard of an iPhone.

What this means for markets

For bond traders, the expanded buyback program offers a near-term floor under long-dated Treasuries. If the Treasury is actively purchasing its own debt in larger quantities, that provides a consistent bid in a market that has sometimes looked dangerously thin.

For equity investors, the stakes are arguably higher. Persistently elevated long-term yields compete directly with stock valuations. When a risk-free 30-year Treasury offers north of 5%, the hurdle rate for equities rises accordingly.

Tchir’s framing highlights a fundamental tension in current policy. The Treasury is trying to manage the symptom, elevated long-term yields, while the Fed controls the underlying cause, the level of short-term interest rates that anchors the entire curve. Without coordination between the two, or at minimum a Fed that acknowledges the fiscal reality, the buyback program risks being exactly what Tchir called it: mediocre.

The September 9 effective date for the expanded buybacks gives markets a few weeks to digest the announcement. But the real catalyst Tchir and others are waiting for won’t come from the Treasury. It’ll come from the Fed’s next policy meeting, and more importantly, from the language the central bank chooses to describe its outlook.

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