Citrini Research said that as the US Treasury and the Federal Reserve strengthen collaboration, it may push the government to shift more to short-term debt financing and reduce the supply of long-term US Treasury bonds, thereby creating conditions for a rise in 30-year US bonds. The research institute believes that changes in bank regulation, Treasury debt management, and the Federal Reserve's balance sheet policy are converging. This framework can be called the new “Treasury - Federal Reserve Agreement.” Under this framework, the Federal Reserve will reduce its balance sheet, while commercial banks will expand their own balance sheets. As the government reduces the issuance of long-term bonds and instead issues more treasury notes, banks will absorb more short-term treasury bonds. Citrini said that the reduced supply of long-term treasury bonds may help reduce long-term yields. The agency suggests that clients bet on 30-year US bonds to outperform 5-year treasury bonds, that is, the yield gap between the two narrows.

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