Monetary Matters with Jack Farley How The Treasury Decides Where To Borrow | Steve Hou on Maturity Issuance Policies of U.S. Treasury and Equity Index Construction
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Jan 13, 2025 Steve Hou, a Senior Researcher at Bloomberg specializing in Treasury issuance and equity indices, joins to discuss the complexities of U.S. Treasury debt management. He explains how the supply effect impacts bond yields and stock correlations, and unveils findings on pricing power and R&D. The conversation delves into the evolution of U.S. debt maturity, the implications of concentrated stock indices, and future macroeconomic strategies, emphasizing the need for adaptive investment approaches as market dynamics shift.
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Hou's PhD Research
- Steve Hou's PhD research focused on the impact of the Fed unwinding its balance sheet and Treasury issuance patterns.
- Initial concerns about the Fed's actions and their impact on asset markets subsided when the unwinding didn't fully proceed.
Bonds as Safe Assets
- From 2000 to pre-pandemic, bonds were negatively correlated with stocks, making them attractive safe assets.
- This period marked the rise of strategies like risk parity, capitalizing on the consistent performance of bonds.
Supply Effect and Stock/Bond Correlation
- The "supply effect" in the government bond market (how much issuance increases yields) is linked to stock/bond correlation.
- When stocks and bonds are positively correlated, bonds add risk to a portfolio, increasing the supply effect.
