Highlights
- Citrini Research argues the Fed and Treasury are converging on a coordinated approach that would shrink the Fed's balance sheet while banks expand theirs.
- Under that framework, both the Fed and banks would buy more Treasury bills while the Treasury issues fewer long bonds, scarcening long-duration supply.
- Citrini frames bank liquidity reform as the "Trojan Horse" enabling this new accord.
- The thesis links Fed Chair Kevin Warsh's balance-sheet hawkishness and Treasury Secretary Scott Bessent's bond-market moves into one coherent regime shift.
- Reduced long-bond supply is the mechanism Citrini says could drive a rally in 30-year Treasuries.
A research note from Citrini Research is circulating among bond traders with a provocative thesis: that the Federal Reserve and US Treasury are quietly converging on a new coordination arrangement, one that could reshape the $30 trillion Treasury market and set up a rally in 30-year bonds. According to PANews, citing Chinese financial outlet Cailianshe, Citrini describes changes in US bank supervision, Treasury debt management, and Fed balance-sheet policy as converging into what it calls a new "Treasury-Fed Accord."
The mechanics, per the research, work like this: the Fed shrinks its balance sheet while commercial banks expand theirs, and both the Fed and the banks increase purchases of short-term Treasury bills. Simultaneously, the Treasury shifts its own issuance mix away from long bonds and toward bills. The combined effect is that long-duration paper becomes scarcer in the market, which, all else equal, should push long-term yields down and prices up.
Bank Liquidity Reform as the "Trojan Horse"
Citrini's framing is notable for identifying bank liquidity regulation, not Fed policy statements, as the actual mechanism driving the shift. Bloomberg reported that the research firm views the regulatory reforms as a Trojan Horse: banks absorbing more government debt onto their own balance sheets, freeing the Fed to shrink its own holdings without starving the market of a buyer for Treasury bills. The setup traces back to the SIVB/First Republic crisis, which put GFC-era liquidity rules back under scrutiny and opened the door to loosening them in ways that happen to make banks bigger bill-buyers.
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Warsh and Bessent Tie the Thesis Together
The research links two figures directly: Fed Chair Kevin Warsh's public balance-sheet hawkishness, and Treasury Secretary Scott Bessent's own market interventions, including the bond-market move traders have dubbed the "Bessent Twist." Both, in Citrini's telling, point the same direction — toward a Treasury that leans harder on short-term bill issuance while the Fed retreats from its balance sheet, leaving banks to fill the gap. That framing gives Warsh's Jackson Hole appearance this week added weight, since any explicit confirmation of balance-sheet intentions from the Fed Chair himself would lend the thesis official credibility.
What to Watch
The clearest test of Citrini's thesis will show up in Treasury auction data over the coming months: a shift toward heavier bill issuance and lighter long-bond issuance would be the first concrete confirmation. Also worth watching is whether US bank regulators move on the liquidity-rule changes Citrini flags as the enabling step, since without that regulatory shift, banks have little incentive to absorb the short-term debt the whole framework depends on.
