Yellen Defends US Debt Policy After Druckenmiller Rebuke

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(Bloomberg) — US Treasury Secretary Janet Yellen disputed billionaire investor Stan Druckenmiller’s assertion that her department had made “the biggest blunder in history” by not taking advantage of near-zero interest rates to sell more longer-term bonds.

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“Well, I disagree with that assessment,” Yellen said when asked to respond to the accusation during an interview on CNN Thursday night. She said the agency has been lengthening the average maturity of its bond portfolio and “in fact, at present, the duration of the portfolio is about the longest it has been in decades.”

Her comments followed a video clip of Druckenmiller saying, “I literally think if you go back to Alexander Hamilton, it was the biggest blunder in the history of the Treasury and I have no idea why she has not been called out on this. She has no right to still be in that job.”

The clip was from an interview with hedge fund manager Paul Tudor Jones at a conference last week.

“When rates were practically zero, every Tom, Dick, Harry, and Mary in the United States refinanced their mortgage,” Druckenmiller told Tudor Jones. “Unfortunately, we had one entity that did not, and that was the US Treasury.”

Read More: Druckenmiller Says He Has ‘Massive’ Bullish Bets on 2-Year Notes

Yellen, in the CNN interview, said “We have found in regular discussions with Wall Street professionals having regular and predictable issuance of maturities across the spectrum — both long, intermediate and short — is critical to having deep and liquid markets for US Treasuries, which is critical to lowering our costs over time.”

“And that is exactly what we’ve been doing,” she added.

The average maturity of US government marketable debt declined last quarter to 72 months, from 74 months, Treasury Department data show. The maturity had held at 74 months since reaching that mark in the third quarter of last year, which was the highest level on record in data going back to 1980.

Druckenmiller responded in an interview Friday by faulting the Treasury’s math, saying the agency’s computations omitted critical borrowing on the Federal Reserve’s balance sheet.

“The only debt that is relevant to the US taxpayer is consolidated US government debt,” Druckenmiller said. “I am surprised that the Treasury secretary has chosen to exclude $8 trillion on the Fed balance sheet that is paying overnight rates in the repo market. In determining policy, it makes no sense for Treasury to exclude it from their calculations.”

US debt managers this week announced a slowing in the pace of increase of issuance of longer-dated securities, after yields on them had surged in recent months. The Treasury instead will tilt toward shorter-dated debt.

Read More: US Slows Its Ramp-Up of Longer-Term Debt Sales, Spurring Rally

That will likely boost the share of bills — which mature in a year or less — in the total amount of Treasuries outstanding. Their share already has surpassed a 20% cap recommended by the Treasury’s outside borrowing advisory panel. That group advised that they had flexibility to surpass the cap given “the work Treasury has done to meaningfully increase” the average maturity of government debt over the past 15 years.

–With assistance from Garfield Reynolds and Sonali Basak.

(Updates with Druckemiller comment in ninth paragraph)

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