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According To The Fed, In Q1 US "Households" Sold $1.1 Trillion Annualized In Treasurys To The Federal Reserve

Tyler Durden's picture


Either we have just gotten yet another confirmation of just how worthless the Flow of Funds "household" plug category is, or there is something very, very wrong with conventional wisdom. According to a detailed breakdown of the Z.1 from Goldman Sachs the biggest seller of US Treasurys to the Fed in Q1, at an annualized rate of $1.1 trillion, were... US Households. We have to wonder how this news makes even remote sense when confronted with the ongoing dumping of stocks by retail investors. On the other hand, if indeed the Fed is correct then the entire paradigm of retail jumping into the safety of US paper may have to be reevaluated. And not only that, but if this activity has continued into Q2, it may present even greater risks for the Fed's unwind of QE2: should households persist in their Treasury dispositions with only dealers left to pick up the pieces, Gross' thesis may be proven right much faster than we expected, Fed Treasury puts notwithstanding.

From Goldman's Alec Phillips:

To evaluate how different sectors reacted to QE2, we compare average quarterly flows into Treasuries from each sector in Q4 2010 and Q1 2011 against the average flows from those sectors over the prior year. To compensate for lower Treasury issuance in the latter period, we adjust the flows for average issuance in the period. The change in relative Treasury demand can be used to approximate the difference between the amount of Treasuries that each sector would have bought or sold over the last two quarters absent the Fed's purchases, and what they did buy or sell on average in Q4 2010 and Q1 2011.

As shown in the exhibit below, over the last two quarters, the most significant sources of net supply for Treasury securities were households (note that this includes hedge funds), the foreign sector, and banks. The only significant source of new net demand was money market mutual funds, which went from a net seller in the previous period to a net buyer on average over the last two quarters.

While we consider the trends over the two quarters in which the latest round of asset purchases has been underway, it is worth noting differences between Q42010 and Q12011. In Q4, households were significant buyers of Treasury securities, shifting over $300 billion (bn) annualized into Treasuries, while in Q1 households were the dominant seller, accounting for more than $1.1 trillion (trn) in annualized outflows. By contrast, the foreign sector slowed its pace of purchases in Q1 2011 from Q4 2010, but by only around $130bn annualized; the foreign sector still remains a net buyer. The major decline in demand from that sector came in Q4, when flows into Treasuries slowed from over $1trn in Q3 to about $300bn annualized.

So where did sellers of Treasuries invest their funds instead? The sectors that reduced purchases of Treasuries noted above shifted funds into agency-backed securities (this includes agency MBS and debt), corporate bonds, money market funds, and mutual funds. Notably, there was little change in either consumer credit assets or mortgage loans, and sectors responsible for the greatest relative outflows from Treasuries during the period as a whole also reduced investment in equities relative to the average flows over the previous year (i.e., Q4 2009 to Q3 2010).

If indeed households were buying up MBS, following the recent battering in the agency market described in our last night's observations on recently failed Fed Maiden Lane 2 auctions (though keep in mind that one man's poison is another man's souffle: for Ben Marsh of BTIG for example a sub<50% auction success rate is the new #Winning), then ordinary US investors have just lost another boatload of money.

Then again, since the "Household" sector is anything but, and is merely a Flow of Funds plug, we would be delighted to get a realistic explanation of just who the Fed ended up paying hundreds of billions in Q1.


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Fri, 06/10/2011 - 11:36 | 1358058 emsolý
emsolý's picture

Where's my Dow 12k hat when I need it?

Fri, 06/10/2011 - 14:48 | 1358885 JailBank
JailBank's picture

Anyone seen RoboTrader today? What stock did he buy this week at its all time lows and sell for a million dollars.

Fri, 06/10/2011 - 11:38 | 1358062 SheepDog-One
SheepDog-One's picture

So in other words US households lost another $1.1 trillion.

Fri, 06/10/2011 - 11:46 | 1358075 Dr. No
Dr. No's picture

If they sold the treasuries to the FED, they received fiat.  Granted they are both paper, but at least with the fiat, you can buy some bread.  If you tried to buy bread with a treasury note, the shopkeeper would give you a dumb look (rightfully so).

Fri, 06/10/2011 - 12:19 | 1358203 SheepDog-One
SheepDog-One's picture

Show me any 'american household' that trades US Treasuries?

Fri, 06/10/2011 - 12:24 | 1358250 Raynja
Raynja's picture

They included hedge funds in households, because they have so much in common. 95% of households couldn't invest in hedge funds if they wanted to

Fri, 06/10/2011 - 13:48 | 1358543 monkeyshine
monkeyshine's picture

Well if they included hedge funds then it explains a lot. But it doesn't support speculation of a recovery. It supports the theory that people are still raising cash. That's not good.

Fri, 06/10/2011 - 13:38 | 1358492 UnRealized Reality
UnRealized Reality's picture

US Saving Bonds? They are Treasuries, aren't they.

I sold my last Bond US$ 10,000( gross 15,000) and bought Gold with half of it. The other half I need for my son Graduate School. So If Savings Bond are counted as T's then yea household are dumping, and good for them. Let WS hold the bag this time. Fuck'em.

Fri, 06/10/2011 - 22:16 | 1360387 Anonymouse
Anonymouse's picture

Maybe all the households became primary dealers and were flipping to the Fed.  So perhaps it isn't Goldman et al flipping the new treasury issues.  It was those evil households

Fri, 06/10/2011 - 11:42 | 1358063 Problem Is
Problem Is's picture

"US "Households" Sold $1.1 Trillion Annualized In Treasurys To The Federal Reserve"

I did? Ben, where's my check? Ben, where's my money?

Fri, 06/10/2011 - 12:47 | 1358323 duo
duo's picture

Considering all household income is in the $6T range, that implies a 16% savings rate (pre-tax).

Fri, 06/10/2011 - 11:39 | 1358069 tecno242
tecno242's picture

Come now Tyler... you are overthinking this...

we just are hitting a market top... so what did the sheeple do...


They dumped treasuries at last from their 401k's and piled into stocks.

Fri, 06/10/2011 - 11:44 | 1358070 Alienated Serf
Alienated Serf's picture

CORPORATIONS ARE PEOPLE!!  They live in large office buildings, which are households.

Citizens United.



Fri, 06/10/2011 - 13:41 | 1358505 Turkey
Turkey's picture


Fri, 06/10/2011 - 13:47 | 1358555 monkeyshine
monkeyshine's picture

Good thinking. Not necessarily "big corporations" but your typical family business, small manufacturer/distributor/farm, raising cash. Not good if we are still raising cash 30 months after the crash.

Fri, 06/10/2011 - 11:54 | 1358073 hedgeless_horseman
hedgeless_horseman's picture

I know the Flow of Funds is all public information, Tyler, but your assassination is really moving today on Intrade.

Why can't you just pay no attention to the man behind the curtain?

We all know the Birth/Death equation for the Flow of Funds is based on the fact that some households will have people that die, and the heirs would then likely sell their Treasuries, while some households have babies born, and the parents would likely buy treasuries for his/her college fund.  True, an inordinate amount of these households happen to be located in Northern Virginia, but so what?  Our .gov is working hard for us.  Sheesh.  Wonder what's on CNBC about this?

Fri, 06/10/2011 - 11:43 | 1358078 r101958
r101958's picture

What a crock. 'Households' = 'TBTF'.

Fri, 06/10/2011 - 14:05 | 1358616 slewie the pi-rat
slewie the pi-rat's picture

meta-crock.  we dunna know.  the usual suspects all include the taxpayer not even getting kissed, just fuked, again. 

zeroHedge has taught me enuf abt banking to suspect at least a rev0-reverse-rep0, possibly w/ a rope-a-dope-180 re-rep0 reversal. 

Fri, 06/10/2011 - 11:43 | 1358080 DonutBoy
DonutBoy's picture

This is why there will be QE3 by some other name very, very soon. Bernanke has been targeting asset prices, but that is voluntary QE.  QE3 will be involuntary.  An insolvent debtor must issue more debt or the world as we know it comes to an end.  It's not about the S&P 500 any more.  It's about how the American form of government will change.

Fri, 06/10/2011 - 12:04 | 1358142 Rainman
Rainman's picture

Timmay needs more Bernank dynamite....he must dump GM's ugly cousin shares too. ALie Bank. Sooner the better.


Fri, 06/10/2011 - 12:21 | 1358213 Silver Dreamer
Silver Dreamer's picture

The world as we know it is coming to an end whether anyone likes it or not.  I just hope liberty survives the impending economic collapse.

Fri, 06/10/2011 - 11:45 | 1358085 hambone
hambone's picture

Whoa Market Watch...check the headline!

Ben to Jamie: STFU

Fri, 06/10/2011 - 12:51 | 1358334 NotApplicable
NotApplicable's picture

Wow, that's crazy.

Well, it would be crazy if it weren't so obvious that this is just the next step in the nationalization of the financial industry.

Of course the idea that Jamie and Ben are in true opposition is no more likely than the dramatic storylines of "professional" wrestling. They both feast on the same corpse, just different ends of it.

Fri, 06/10/2011 - 11:49 | 1358089 swissinv
swissinv's picture

I simpy can't believe this... The standard retail investor buys equities and is rarely well educated about fixed-income investments. Apart from this, a retail customer must also have money for bond trading.

Fri, 06/10/2011 - 11:48 | 1358090 hambone
hambone's picture

Ummm, what exactly can you believe coming from our government?

One thing you can potentially believe is that if gold closes flat or green today and everything else sells off, fiat is officially dead and the rush to PMs could be on.

Fri, 06/10/2011 - 12:56 | 1358337 NotApplicable
NotApplicable's picture

Our government?

Is that you, Mr. Soros?

Fri, 06/10/2011 - 12:05 | 1358097 TruthInSunshine
TruthInSunshine's picture

williambanzai7; a little help.

Please give me a graphic of this flow of funds:

1)   Treasury under Paulson & Geithner literally shower free money on 'TBTF' entities, with such money being put on U.S. taxpayer tabs.

2)   The Federal Reserve Bank under Bernanke & Dudley literally shower free money on 'TBTF' entities, foreign central banks, plain ole' corporations, even wives of the CEOs of TBTF entities, etc., with such money ultimately being put on U.S. taxpayers tabs (it will officially happen, though it already has, unofficially - the Fed is insolvent).

3)   The Federal Reserve Bank under Bernanke & Dudley literally shower additional free money on 'TBTF' entities, corporations, as Bernanke artificially suppresses treasury yields to historically low and absurd levels, allowing banks, corporations and anyone else with an asset to sell that rivals or beats tnotes able to get essentially free money, with such essentially  free money ultimately being put on U.S. taxpayers and savers tabs (the inevitable and necessary reversion in yields -- think overshooting to downside ultimately necessitates overshooting to the upside -- is going to hurt like a bitch to undo the distortion that Bernanke has wrought).

***Please feel free to use urine streams as emblematic of showers, and throw Calvin in there as much as you wish. I like Calvin. It's humorous to see him piss on things. Just remember that the U.S. taxpayer and responsible savers are the ultimate recipient of the golden shower under scenarios 1 through 3 above.***

Fri, 06/10/2011 - 11:53 | 1358100 AssFire
AssFire's picture

The faster it all falls apart the better. Tired of this "Wax Fruit America" whereby everything is made to look attractive but is utterly tasteless.

Fri, 06/10/2011 - 11:54 | 1358107 mr. mirbach
mr. mirbach's picture

Aren't hedge funds counted as households?  Seriously, I thought I read that buried deep in the FED's playbook that hedge funds are classified as households - I couldn't make that shit up!


Fri, 06/10/2011 - 12:05 | 1358159 NotApplicable
NotApplicable's picture

Yes, they are (according to Alec Phillips, above).

So, the hedgies sold over-priced Treasurys to the Fed, then either liquidated their fund, or moved into higher return agency paper, knowing that it too will be back-stopped by The Bernank.

Isn't this what Gross is doing as well (with the exception of his growing cash position)?

Fri, 06/10/2011 - 11:54 | 1358109 John McCloy
John McCloy's picture

  This would make sense. People are liquidating anything they possibly can in order to pay bills in this jobless environment. They dusted off those bonds they got for their graduation and headed down to the bank. How could they look their neighbors in the face if they have an iPad 1 or a (Gasp) PC Tablet.

  All kidding aside people are really hurting and higher commod costs are doing no favors.

Fri, 06/10/2011 - 12:12 | 1358173 NotApplicable
NotApplicable's picture

I wonder how Boomer retirement fund liquidation fits into all of this. Those are about the only "households" left that I can imagine with any bonds left to hold.

Fri, 06/10/2011 - 12:49 | 1358319 MachoMan
MachoMan's picture

I dumped a couple bonds i got in grade school...  no need to do so other than protect my purchasing power...  you can surmise what was purchased with the proceeds.

Fri, 06/10/2011 - 11:52 | 1358115 gwar5
gwar5's picture

Maybe retail is following ZH and not as dumb as TimNanke thinks.  

Fri, 06/10/2011 - 11:57 | 1358121 bugs_
bugs_'s picture

damn households - dumping their toxic assets on the fed

Fri, 06/10/2011 - 11:58 | 1358134 mick_richfield
mick_richfield's picture

'Households' in the sense of House Atreides and House Harkonnen.

Fri, 06/10/2011 - 12:02 | 1358137 RobotTrader
RobotTrader's picture

Nobody looks at Flow of Fund reports.

99% of all traders watch the bond quotes on the Bloomberg screen.

Right now, rates across the curve are still smashed at 45-year lows.

And 15-year mortgage rates are now the lowest they have been in 70 years.

Fri, 06/10/2011 - 12:07 | 1358153 hedgeless_horseman
hedgeless_horseman's picture

Service Guarantees Citizenship

You're doing your part, RobotTrader.


Fri, 06/10/2011 - 12:09 | 1358163 lieutenantjohnchard
lieutenantjohnchard's picture

and your tzoo tout is down 45%. and the etrade account consisting of widows and orphans stocks continues to bleed dry the part time contract 1099 processor, who fancies himself a trader.

how's that short working for you? you know the one you said you would make once 1300 broke.


Fri, 06/10/2011 - 12:08 | 1358171 RobotTrader
RobotTrader's picture

Shorts are working well, thank you.

And I only posted TZOO and LULU for entertainment purposes, I would never invest in anything that risky.

Fri, 06/10/2011 - 12:16 | 1358185 TruthInSunshine
TruthInSunshine's picture
by RobotTrader
on Fri, 06/10/2011 - 12:08

Shorts are working well, thank you.

And I only posted TZOO and LULU for entertainment purposes, I would never invest in anything that risky.




Fri, 06/10/2011 - 12:20 | 1358224 SheepDog-One
SheepDog-One's picture

AHHH HA HA HA HAAAAA! LULUboy youre only for entertainment purposes yourself!

Fri, 06/10/2011 - 12:29 | 1358256 lieutenantjohnchard
lieutenantjohnchard's picture

if you were short you would have been crowing at the top of your lungs at your brilliance. instead, your comments are better than 50% focused on gold and silver. the other half are random posts on tzoo, lulu and the like to stick a thumb in the eye of gold and silver holders, as if owning them was less preferable than a lulu or tzoo. then when other zh'ers call you on it you state that you post for entertainment. riiiiight.

you lie to yourself. only new zh'ers are fooled by your preposterous comments, and they but temporarily.

Fri, 06/10/2011 - 13:42 | 1358514 Canaduh
Canaduh's picture

That made my day. If anyone had any doubts, thanks for erasing them.


Your calls should be referred to as 'The Shill Index'.

Fri, 06/10/2011 - 12:10 | 1358165 hambone
hambone's picture

Then it's unanimous...everybody thinks rates can only go down...time to buy my TBT?

Fri, 06/10/2011 - 13:15 | 1358393 decon
decon's picture

Wait until the 30 year yield is 4, then the right shoulder will be complete.

Fri, 06/10/2011 - 12:17 | 1358204 Boston
Boston's picture

Here's another way of looking at the Household flows:

For a full eight months AFTER the Flash Crash, ZH posted weekly equity mutual fund reports showing massive OUTflows.

Where did much of this money go?  Treasuries?

This spring, retail capitulated (sadly, but not surprisingly, after the huge run up in equities) and started to buy back into equities.

Where did much of this money come from?  Treasuries?

Bottom line:  retail has it usual.  As the shit continues to hit the fan in equities (thank you David Tepper!), retail funds will rush OUT of equities and back INTO Tresuries.

This is precisely where the final push to this cycle's lows (in yields) will come from!


Fri, 06/10/2011 - 21:24 | 1360282 FlyPaper
FlyPaper's picture


Not surprising that "risk off" in the stocks would send money into Treasuries as a place to park it.  

Bernanke has been saying the commodities run-up was temporary.  If he knew he'd pull the QE plug for a while, commodity prices will come down; and funds would flow back into US debt lowering the Government's cost of borrowing. 

Potential scenario: 

Bonds up for a while until QE3 announced

Bonds start their decline

Bond decline may be interrupted by Euro anxiety

Bond decline may be accelerated by political failure over debt ceiling and timing

Bonds will begin their final slow decent; and the borrowers will suck the remaining wealth out of the bond holders.




Fri, 06/10/2011 - 12:21 | 1358220 MrSteve
MrSteve's picture

With Shiller forecasting another 25% to be chopped off home prices, the relative value of mortgage rates is still way too high. Any price is too high for a dead horse with a million dead horses piled up behind it.

Fri, 06/10/2011 - 12:25 | 1358243 SheepDog-One
SheepDog-One's picture

Schiller- 'I wouldnt be surprised to see a further 25% decline in housing from here.'

Fri, 06/10/2011 - 12:23 | 1358209 plocequ1
plocequ1's picture

Is my basement apartment overlooking my next door neighbor's dogs ass considered a household?

Fri, 06/10/2011 - 12:24 | 1358211 TomGa
TomGa's picture

Come on. "Household" is simply a sweep category. It doesn't correspond exclusively to retail investors.  This was discussed here on ZH ad nausem last year.


The "Household" Sector:

"The inappropriately-named household sector consists of individual households, nonprofits, hedge funds, private equty, private foundations, labor unions and others, and Treasury holdings allocated to it, are calculated as a differential between total USTs outstanding and known amounts held by other investors. Basically, it serves as a plug to "everything else.""

Fri, 06/10/2011 - 12:25 | 1358254 Tyler Durden
Tyler Durden's picture

Come on. Did you do a word count for "plug" in the post above?

Fri, 06/10/2011 - 12:50 | 1358264 TomGa
TomGa's picture

Yeah, twice. Thanks for pointing it out. Now all makes sense...

Fri, 06/10/2011 - 12:37 | 1358268 TomGa
TomGa's picture


Fri, 06/10/2011 - 12:35 | 1358278 hedgeless_horseman
hedgeless_horseman's picture

How many times do I have to tell you, Tyler?  Inverted Pyramid.

You can't expect people to read more than the first couple of sentences, especially us Americans.

From the last paragraph:

Then again, since the "Household" sector is anything but, and is merely a Flow of Funds plug, we would be delighted to get a realistic explanation of just who the Fed ended up paying hundreds of billions in Q1.

Fri, 06/10/2011 - 12:23 | 1358225 I am a Man I am...
I am a Man I am Forty's picture

this surprises me and makes no sense to me, therefore their report must be wrong

Fri, 06/10/2011 - 12:21 | 1358237 Confucious 222
Confucious 222's picture

Who can deny that Goldman Sachs is a "household" name?

Who can deny that?

Everybody knows their name, even Cliff the mailman and Normy. 

Fri, 06/10/2011 - 12:27 | 1358247 gwar5
gwar5's picture

Maybe internet savy retail is following ZH and not as dumb as TimNanke thinks. They'll have an app for that.

The current Bilderberg meeting has many IT corp heads along with our NSA US CYBERCOM chief.  Remember, NSA is soon to open their supercyber spy facility inside a Utah mountain full of supercomputers that will consume more electricty than the entire city of Salt Lake City, UT.

Their goal is to spy on all planetary electronic data and collate it in real time with archives electronic data to predict your behavior and preempt you based on your trail of electronic data, again, in real time.

Pre-crimes Bitchez! 

Fri, 06/10/2011 - 13:07 | 1358372 carbonmutant
carbonmutant's picture

Glitch in the Matrix...

Fri, 06/10/2011 - 13:21 | 1358433 citta vritti
citta vritti's picture

pull the plug, down the drain?

Fri, 06/10/2011 - 16:11 | 1359270 TruthInSunshine
TruthInSunshine's picture

The drain is blocked....looks like some sort of vampire squid circling around it.

Fri, 06/10/2011 - 16:39 | 1359431 slewie the pi-rat
slewie the pi-rat's picture

only a tril.$ +. 

over 3 months.  masters of the universe.  counterfeiting wealth near you. 

very near. 

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