Stanley Druckenmiller, billionaire investor and head of the Duquesne Family Office, said that currently there is no market for selling much longer-term duration bonds (US10Y), (US30Y).
During a CNBC interview on Wednesday, he said that the market would be very challenged in the current environment.
He explained that pre-Covid, the federal government was spending 20% of GDP. The percentage is now 25% of GDP.
“My father told me, ‘If you’re in the hole, stop digging, Stan’,” he told CNBC.
He also said that the U.S. missed a “once in a century opportunity” and explained that in 2021, U.S. Secretary of the Treasury Janet Yellen — and even Steven Mnuchin before her — spent $5T, buying Treasury debt at 1.82%, with nominal GDP growing at 10%.
“That was at a 700-year low in interest rates,” he said. “The risk reward of issuing debt at 1.1% in the 10-year (US10Y) is off the charts.”
He explained that during the second half of 2021, interest rates on 10-year bonds were 1.1%. On the 30-year bond (US30Y), they traded under 1.8%.
The Treasury department suspended the 30-year (US30Y) auctions in 2001 “because the term premium was high, the yield curve was steep, and they thought it was a useless use of money,” Druckenmiller said. “They were reinstated five years later.”
“Treasury will have you believe that the maturity of the debt is 72 months. That conveniently leaves out $8T that is funded overnight in the repo market,” he said. “So, the statement by the Treasury department and others [saying] that the maturity of the debt has increased since pre-Covid is absolutely incorrect.”
Eighty percent of American households refinanced their mortgages, he added. “They linked the average maturity of mortgage debt from 3.5 years to eight years. As a consequence, it is going to take five years for that maturity to get back to 4.5. So, it’s just huge what they saved.”