Druckenmiller warns that defending a bond price level invites market tests of government resolve that require ever-growing interventions.
“Once markets believe Treasury is defending a price, every rise in yields becomes a test of official resolve, and the operations must grow to survive the tests.”
Druckenmiller argues Treasury intervention in bond markets risks escalating into ever-larger purchases if it tries to suppress long-term yields.
“ rather than a legitimate liquidity operation. He contended that markets were correct to interpret the intervention as an attempt to suppress yields and warned that any effort to hold down long-bond yields could pull the Treasury into an escalating cycle of ever-larger purchases. ”