There was, IMO, shortage of treasuries, meaning the government borrowed less than it paid out as interest. The government rolls over its debt. Whe a rollover occur (they pay let say some 10 years debts that is due, plus interest). When the roll over is smaller than what is paid out, there is more demand for the treasuries than supply. That causes the price to go up and thus interest rate to go down. I believe that during the second half of 1997, this imbalance was partially offset by sale of treasuries by BOJ. If it were not, the yield curve could have become inverted.
Unfortunately, I do not know what Rubin does, and he is much smarter than I am. However, I can try and make some guesses. Rubing cannot go out there and replace at once few trillions of short term debt, he must keep more or less in balance with the instruments that are coming due (or he will create a time inversion in the rates). I do think, however, that when interest rates where much higher, within these constraints, Rubin issued more short term debt relative to long term and now, I think he is gradually reversing this and using the opportunity presented by low interest rate to lengthen the maturity of the debt. This is a lengthy process and will probably continue as long as the long term debt is under 6%, IMO.
Zeev |
