Tuesday, August 20, 2013

About those US Treasuries . . .

Remember the three articles I wrote earlier this month about the risk of serious disruptions in the bond market?

From an e-mail received today from Mauldin Economics:

Ben Bernanke started the bond sell-off in May when he introduced "tapering" to the Wall Street vocabulary and warned that the Fed could start reducing its $85 billion of monthly bond purchases at one of its "next few meetings."

One group of investors who paid great heed to that warning was foreign investors.

In June, foreign investors dumped $5.2 billion of Fannie Mae, Freddie Mac, and Ginnie Mae bonds, $5 billion in corporate bonds, and $40.8 billion in US Treasury bonds-all part of the $66.9 billion in sales of other long-term US securities.

That is the biggest monthly dumping of Treasuries by foreign creditors since 1977!

So which of our country's creditors are doing the most selling? None other than our two biggest creditors, China and Japan.

China and Japan sold a combined $40 billion of US debt last month, but that's a drop in the bucket. China and Japan hold $1.27 trillion and $1.08 trillion of US debt respectively, and more selling will lead to even more bond losses.

Want to know why the Fed is having to buy so many new Treasury securities (bonds) itself?  It's because foreign investors will no longer do so.  They no longer see our Treasuries as worth buying - in fact, they're selling.  In their shoes, I'd be doing the same . . . just a lot faster, trying to get rid of as many US bonds as possible before the inevitable crash.

I wonder what July and August's figures will look like?  (If you think they'll be better from a US perspective, I have this bridge in Brooklyn, NYC I'd like to sell you.  Cash only, please, and in small bills.  Look at it like this - it can't possibly be a more speculative investment than US bonds right now!)



Sunnybrook Farm said...

Things are going as planned, destroy the flawed country and build a utopia out of the wreckage.

Anonymous said...

Cash only for the bridge? I've got $50 trillion Zimbabwe dollars, let's deal!


Rolf said...

I still think that either (a) there is no plan, but they don't know how to do anything else, so the print $ and buy treasuries until it blows up, then they all resign and collect their retirement checks, or (b) the plan is to print and buy bonds until it is starting to blow up, then simply write them off at the Fed which will own 80% of them by then, effectively reducing our debt by 80%, so we can tolerate the higher interest rates. They really haven't thought about the "OK, then what" part of the plan that much.