Wall Street investment banks seriously interpreted the "Mar-a-Lago Agreement": U.S. debt restructuring, suggesting "let the Federal Reserve exchange zero-coupon Treasury bonds"

The proposed Mar-a-Lago agreement by the Trump administration has sparked a wave of "interpretation" on Wall Street.

Stephen Miran, a nominee for the Council of Economic Advisers, positioned tariffs as a dual tool in a widely circulated paper: both a "big stick" for trade negotiations and an important source of government revenue. TS Lombard analyst Steven Blitz pointed out:

"Regardless of how much of the tariff is ultimately passed on to prices, 100% of the tariff revenue will flow into the federal treasury, which is precisely why the government is eager to implement tariffs."

He also described the "Mar-a-Lago agreement" as a "classic forced restructuring," which is consistent with Trump's experience in dealing with over-leveraged companies in the business sector. Blitz further suggested that the Federal Reserve should replace its portfolio with non-tradable zero-coupon bonds:

"Transforming 15% of the U.S. Treasury bonds held by the Federal Reserve into zero-coupon bonds would significantly reduce debt service costs. The Treasury could then pay interest on reserves to banks through the Federal Reserve."

He believes this would shift monetary policy to manage the supply of tradable government bonds through interest on reserves, ultimately returning economic management to the more suitable fiscal department.

In fact, according to the Financial Times, the core of the Mar-a-Lago agreement is "to force creditors to realize that what they hold is essentially equity disguised as debt, and to require them to exchange existing debt for new terms (e.g., longer-term debt) or directly accept equity," which would lead creditors to relinquish their priority status in the creditor hierarchy during liquidation.

However, Blitz is skeptical about the success of the plan. He pointed out that America's largest creditors are outside the sphere of U.S. influence, and the Trump administration is alienating countries like Japan and Germany that are within its sphere and hold significant amounts of U.S. debt.

Additionally, some countries (like Japan) rely on the returns from U.S. bonds to meet their pension obligations, thus lacking the incentive to shift to long-term low-yield bonds. This situation could lead to two extreme outcomes: either all countries choose to remain within the U.S. security framework, making America's defense commitments unsustainable; or all countries choose to exit, willing to reduce their holdings of U.S. debt and accept higher tariffs, ultimately placing the U.S. in a more disadvantageous position.

Miran cited former AlphaVille columnist Zoltan Pozsar's view, suggesting issuing "special century bonds" to foreign exchange reserve managers as a means to refinance existing debt. These bonds are expected to carry relatively low coupons, essentially leveraging the U.S. global security framework to compel creditors to extend the maturity of their held debt.

Additionally, it is worth noting that the United States-Mexico-Canada Agreement (USMCA) will undergo review and possible renegotiation in 2026, giving the current tariff policy a distinct "forward guidance" character.

Risk Warning and Disclaimer

Markets are risky, and investments should be made with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances Based on this investment, the responsibility lies with the investor