The Fed is hiking to save Treasury demand, JPM is buying long end bonds

Everyone thinks the Fed is hiking mainly because of inflation.

But there is another reason hiding inside the Treasury market (Treasury basis trade).

The Treasury has been buying back longer-term bonds while issuing more short-term bills.

That changes where the supply pressure sits.

More bills hitting the market
→ bill prices come under pressure
→ bill yields rise.
And that creates a problem for the Treasury basis trade.
Here’s the simple version.

A lot of hedge funds buy Treasuries using borrowed money.

They pledge those Treasuries as collateral and borrow cash overnight through the repo market.

A major source of that cash is money-market funds.

Normally:

Money-market funds lend into repo
→ basis traders borrow
→ leveraged Treasury buying continues.

But now money-market funds have another very attractive option:

Treasury bills.
As more bills are issued and their yields rise, MMFs start asking:
Why lend cash into repo when I can simply buy a government T-bill at a better yield?

So the chain becomes:

Long-end buybacks + more bill issuance
→ bill yields rise
→ MMF cash moves toward bills
→ less cash goes into repo
→ SOFR volume falls
→ basis-trade funding becomes harder
→ leveraged Treasury demand weakens.

Look at the chart.

Since January, SOFR transaction volume has been falling.

Now today’s Fed hike becomes much more interesting.

A Fed hike pushes overnight rates like SOFR higher.
That can make repo lending attractive again relative to bills.
Potentially:
Fed hikes
→ SOFR/repo yield rises
→ MMFs return to repo
→ repo liquidity improves
→ basis-trade funding improves
→ leveraged Treasury buying returns.
So while everyone is watching inflation, I’m watching Treasury plumbing.
The real confirmation comes after the hike:
Does SOFR volume start rising again?

If it does, it may tell us that cash is flowing back into the machinery financing leveraged Treasury demand.

Everyone thinks the Fed is hiking mainly because of inflation.

But there is another reason hiding inside the Treasury market (Treasury basis trade).

The Treasury has been buying back longer-term bonds while issuing more short-term bills.

That changes where the supply pressure… pic.twitter.com/0zSTRv0xo5

— Macro Liquidity by Sunil Reddy (@Macrobysunil) September 16, 2026

JPM is buying long end bonds $TLT

“Central bank rate hikes established its credibility and Bessent got enough fire power to stabilize long end bond yield if he wants to… it’s just gotta too cheap to ignore now”. https://t.co/vCLQWNfmGx

— SwingTrader (@SwingTraderQ) September 17, 2026