Treasuries Archives - the patient investor

June 16, 2012

Guess Who's Buying All the Bonds? (It's Not the Fed) – CNBC

The demand among average investors has swelled so much, in fact, that they bought more Treasurys in the first quarter than foreigners and the Fed combined.

Households picked up about $170 billion in the low-yielding government debt during the quarter, while foreigners increased their holdings by $110 billion.

via Guess Who’s Buying All the Bonds? (It’s Not the Fed) – US Business News – CNBC.

Comment:~ Jim Bianco points out: “If mom and pop were really the end buyers we would expect to see similarly booming numbers from the mutual fund industry. However….mutual fund purchases are a somewhat insignificant portion of domestic buying. Our guess is the domestic buyer is a leveraged carry trader, a mutual fund, a brokerage subsidiary or other group that does not have its own category so it gets ‘dumped’ into the default category of households.”

[Hat tip to Barry Ritholz]

November 1, 2011

Say What? In 30-Year Race, Bonds Beat Stocks – Bloomberg

Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.

The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year.

via Say What? In 30-Year Race, Bonds Beat Stocks – Bloomberg.

Does this mean we should all rush out and buy 10-year Treasury Notes yielding less than 2.20 percent? I think not. The potential for further capital gains from lower yields is far outweighed by the risk of capital losses from future rate rises. And there are plenty of low-to-medium risk alternatives that will perform better than 2.20 percent.

October 21, 2011

China’s U.S. Debt Holdings

According to China Daily, China owns $1.13 trillion of US debt. China has $3.20 trillion in foreign exchange reserves.

via Chart of the day: China’s U.S. Debt Holdings | Credit Writedowns.

The key statistic here is the $36.5 billion decline in August which dwarfs previous monthly changes. No wonder the yuan jumped against the dollar.

But ask yourself: why has a poor country like China (GDP per capita of $4000 a year) invested more than $1T in US Treasuries? It could not be for the yield. Inflows on the US capital account are used by China to suppress its currency and give its exporters a massive trade advantage against US manufacturers. Imposing punitive tariffs on Chinese imports would provoke a tit-for-tat response and lead to a trade war. But a US withholding tax on foreign capital inflows could not provoke retaliation as China already strictly controls capital inflows. And exemptions to the withholding tax — only to countries who have reciprocal open capital markets — could be negotiated on a country-by-country basis as an extension of existing tax treaties.

That would force currency manipulators to repatriate their investments in US capital markets. This should be welcomed by the US as it would suppress the dollar against the yuan and other currencies, giving US manufacturers a massive advantage in export markets.

September 22, 2011

Dollar surges as Fed nixes QE3

The US Dollar Index surged after the latest FOMC statement avoided any mention of additional purchases of Treasuries or mortgage-backed securities (MBS). Though they did leave the door ajar with their concluding paragraph:

………The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

The index respected the new support level at 76.00, confirming a primary advance to 79* — the start of a primary up-trend. 63-Day Twiggs Momentum crossed to above zero, further strengthening the primary trend signal; a large trough that respects the zero line would provide final confirmation.

US Dollar Index $DXY

* Target calculation: 76 + ( 76 – 73 ) = 79

September 21, 2011

QE Can’t Save the Day… We’ve Done a Version of It For Over 10 Years | ZeroHedge

While most commentators proclaim that QE is a completely new phenomenon, we have in fact seen a version of it in the form of the Fed’s and Asia’s (especially China’s) purchases of US Treasuries/ currency pegs over the last decade or so.

Indeed, today, the Fed, China, and Japan collectively hold 61% of the $10 trillion of US debt held by “the public.” When you add in the additional $4.6 trillion in US debt held by “intragovernmental holdings” (basically the Federal Government buying Treasuries by raiding Social Security and other pension funds) you find that Asia and the Feds have monetized $10.7 trillion of the US’s total $14.6 debt (roughly 73%) over the last 20 years.

via QE Can’t Save the Day… We’ve Done a Version of It For Over 10 Years | ZeroHedge.