Morgan Stanley Fixed Income Fund Manager Trims Curve Steepener Bets, Says Bessent Intervention Caps Long-End Upside
Nashnova编辑部
Morgan Stanley bond fund manager Vishal Khanduja is trimming his yield-curve steepener positions, arguing that Treasury Secretary Bessent's doubled buyback plan has effectively capped long-end rates and worsened the trade's risk-reward.
Why is he cutting the position?
Khanduja had been betting on a widening spread between 30-year and 5-year yields — a "curve steepener" (long-end rates rising faster than short-end rates).
But the Treasury announced last week it would at least double buybacks of 10- to 30-year outstanding bonds, creating what Khanduja calls a "non-economic buyer" at the long end. This means → the government is absorbing part of the long-bond supply, artificially holding down long-end yields.
Since the announcement, the 5-year/30-year spread has narrowed roughly 10 basis points. Khanduja's read: a ceiling is now in place, and the steepener has limited upside left.
What exactly did Bessent do, and why the Draghi comparison?
Khanduja compared Bessent's move to ECB President Draghi's 2012 "whatever it takes" pledge to defend the euro. In plain terms = this is not just one buyback — it is a policy signal that the government will intervene repeatedly to cap long-end rates.
Barclays strategists estimate the expanded buybacks amount to roughly $64 billion per year, about 15% of annual 20-year and 30-year issuance.
Khanduja labels the operation "quasi-QE." This means → the Treasury is removing duration risk — the interest-rate sensitivity embedded in long bonds — from the market, which also supports risk assets as a side effect.
How has his fund performed, and where is he rotating?
Khanduja manages the Eaton Vance Total Return Bond Fund, roughly $4.4 billion in assets. Over the past decade it has returned 3.2% annualized — about twice the Bloomberg U.S. Aggregate Bond Index — and has beaten roughly 97% of peers, per Morningstar.
After trimming the steepener, he added investment-grade corporate bonds and exited mortgage-backed securities (MBS).
He is also betting on dollar weakness against high-yielding emerging-market currencies. This reflects a view that dollar strength has peaked and offshore carry offers better opportunity.
Does the market agree? Where is the pushback?
Plenty of disagreement. Bessent's former mentor, hedge-fund manager Stanley Druckenmiller, called the buyback program a "mistake" in a published column.
Strategists at Deutsche Bank, JPMorgan, and Goldman Sachs still expect the curve to steepen eventually — long-end rates will rise over time, in their view.
Khanduja does not deny the structural pressures: inflation, fiscal deficits, and a flood of bond supply from AI-infrastructure financing all push long-end yields higher. But he argues that ongoing Treasury intervention will compress the profit window, sharply worsening the steepener's risk-reward. In plain terms = the directional call may be right, but the government has flattened the payoff.
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