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Presenting The Plunge In Foreign Interest For US Treasurys
There has been much speculation recently about whether or not China is or isn't dumping its holdings of US Treasurys. Spoiler alert: it isn't. At least not outright. After all, it still is not a self-sustaining economy and as such relies on what's left of the US middle class to purchase its production. In fact, according to the latest TIC data, after 5 months of declines, Chinese UST holdings increased in April 2011. The problem with TIC is that it is woefully late. It is also terribly unpredictable and subject to annual adjustments which see hundreds of billions adds or subtracted from estimated holdings. Furthermore much has happened in the period between April and the first week of July. Namely the end of QE2. Furthermore many will note that there has been little if any change in market sentiment to Treasury paper now that QE2 is over (which is actually very much untrue after last week we saw the biggest percentage blow out in the 5 Year in history). But for the best indication of what non-US based buyers of Uncle Sam's paper think about the desirability of said paper, we went to the source, and compiled all Auction issuance data since the June 2009 bidder reclassification rules. The result is quite striking. Over the past 2 years, foreign demand, expressed by the final take down as a percentage of total auction size across the entire curve (2,3,5,7,10, and 30 Year) has plummeted from 55% to just below 35% as of the last auction.
Stated otherwise, and as seen on Chart 2 below, Primary Dealers (mostly) and Direct Bidders (to a very minor degree) now account for roughly two thirds of all Treasury placement. The problem is that Dealers no longer can flip their holdings to the Fed as Zero Hedge had been demonstrating POMO after POMO. And since the debt ceiling will be raised, and since nothing in Washington will change vis-a-vis deficit spending when all the posturing smoke and mirrors clear, the Treasury will have no choice but to issue another $2 trillion in debt over the next year.
The only question is who will it sell it to?
And yes, there will be demand, even foreign demand, for Uncle Sam's paper. But at what price. Certainly not at prevailing rates.
We may have our answer as soon as next week's issuance of $66 billion in 3, 10 and 30 year paper. Because if the recent issuance of 2, 5, and 7 Years was any indication about foreign interest, watch out below.
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After reading the crap from Marxists like "Use of Weapons" and comparing it to Cheeky's comments I really miss the old ZH days.
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Interesting game of chess going on. China backs off Treasuries as US import demand slackens and the "austerity" word is bandied. Such are the games of global economics. Even though the Fed can engineer stealth monetization (and it has for 30 years) and keep up appearances of demand for Treasuries (while capping rates), this is not without risk. As many here already surmised that risk is inflation (during a time of real economic contraction).
Hey Caviar, I am having a hard time believing that widespread inflation other than commodities is going to take off due to the fact all the money printing in the world doesent seem to be making it's way into the hands of consumers/common folk as evidenced by the decrease in hourly earnings and the rampant under-employment. With the risk of getting flamed, perhaps the inflation seen over the past 6 months is transitory as we slip back into recession/deflationary death spiral.
Truly, for the mass in the USA cash is not sufficient. We will see oil up and some other commodities too, but there are not mountains of cash chasing anything else. In the land of the oligarchs the situation is different, cash gets loaned back to the Fed. For us 99% deflation is the broad trend. I am finding cash purchases at prices which are very low.
Cash is king.
You owe money to bank, you are very careful to "Smile" when you walk into bank.
If Bank sits on your money, a mountain of it... THEY SMILE when you walk in.
Consider that.
Ahhh... one of the lucky ones genetically predispositioned to digest iPads, I see.
No, I reject iPads and anything similar to them.
I use a fucking 60 pound steel case tower desktop I built years ago to post from.
I bottom feed last year's hottest and greatest hardware at bargin close out pricing to stay at least within a step of being obselete.
The amount of Ewaste in the form of discarded computer builds into the dumpster over the years is a testament to my ever increasing ability to maintain and build new systems on ever less amounts of money.
+ an inflation adjusted .86
The current inflationary system is the way the Power Elites reduce the proles' pay and increase their expenses. (Much of those increased expenses get back to the PEs.) This includes not only the proles that are working. At the same time the unions are being destroyed too. Fortunately for the PE, most of the proles are too stupid to understand what's really happening. Eddie Bernays showed them the way. Keep the game very complicated with rules, bullshit and irrelevancies. Religious nonsense helps keep the sheep confused too. Ingenious, no?
The Power Elites are not getting pay cuts.
+1
Throw in some trivial social wedge issues like 'gay marriage', run the Casey Anthony trial 12 hours out of each day with twitter updates on cable news every 3 seconds, show some Dancing With The Tards, have Repomocrats and Demoblicans scream at each other on Bill Maher, have William & Kate come to California with media in tow, pile up the SNAP cards so that twice as many Americans get free panne as they did just two years ago (up to 45 million now), rattle people on the claims that da terrorists are surgically implanting bombs in their gall bladders and raise the 'Orwellian Color Code Threat Matrix,' and voila...
...everyone gets their piece of the American Dream.
Mr. Durden,
I predict 'Channel Stuffing'..of Treasurys...
'The parking lots of PD's are stocked full of floor plan Treasurys, the delivery of last weeks 5 and 7 year models met with lackluster demand, hoping they can clear room for next weeks shipment 10 and 30 year models'
Remove GM from previous channel stuffing articles and insert US Treasury...gee Timmah one smot fellah, he lernt good from ownin some of that there GM manedgement teem!
If The Bernank loans $600 Billion to foreign central banks at 0%...ZIRP...
I am sure Timmay will find foreign buyers at his bond auctions...
Bernanke does what he wants! Timmah loves it! Premium bitches!
Boehner abandons efforts to reach comprehensive debt-reduction deal
http://www.washingtonpost.com/business/economy/boehner-abandons-efforts-...
boehner caves. why am i not surprised with these spineless jellyfish.......? fuck em all. here comes the new debt ceiling.
Perhaps someone explained New Economics to him and he realized... Fuck it, it's just zero's on a screen...
Once he went golfing with Obama it was clear his spine was absent.
Golf? Excuse me?
UFB
Money (for lack of a better term) ran from Treasurie debt and dollars and into...stocks. Gasp! Money (again, it is not money, fiat is not monie) wants to invest in corporations! Gasp! Corporate takeover, bitchez.
Paper money means nothing.
Now a measure of Physical metal as a means of defeating the problem of debt and enslavement without any encumberance and in physical possion after delivery. It is a wonderful thing to watch the commodity gain in worth when priced in any currency.
At some point in the future it's going to be cashed out. Back in the 30's People bought entire factories for a few silver or gold coins.
+1,
Paper means nothing. It is less than a handshake. At least with that, you can look someone in the eye.
My shiny eyes are pointed at the hydroelectric dam in town, and the water treatment plant. I've got a box of silver that says that on a long enough timeline, they belong to me.
Oligarchs, bitchez.
Sure.
The Corps of Engineers own the dams in our area. Just be sure to live high above your flood elevation.
I have my eyes cast upon generators in time of trouble. 5000 of them should keep a small city going well enough among the grateful phesantry at any price.
And maybe someday I will bring in semi trailer loaded with cat generators and hook into the grid between the substation and loops about the area.
Yeah, but what are you going to run them on?
Comment removed
nice try bitch
http://www.youtube.com/watch?v=4ECi6WJpbzE&feature=player_embedded
Made in 2010. Go to 42.43 mark. It is exactly what this guy is saying
Also don't miss the "I think I got away with that" smirk at 21:52
My "favorite" stocks are all up after hours. NKE, MAR, JWN, WFM, PSLV, NFLX, CAT, HOG, HES, BA...did I leave any out? Corporate yakover.
But, do not worry, it is not too late for you, the market will pullback violently during the next 2-3 weeks, and you can buy some calls. Hyperinflation it will be, and has been, but nobody knows yet, so...shhh... don't tell nobody.
My favourite stocks (Canadian oil stocks) have all been going down over the past few days. Barack must be planning on selling another bunch of SPR next week. Man that guy has it going on.
Wish I lived in the states so I could vote for him next time as I am thinking about investing in Calloway.
Just got back today from fishing in Tofino, B.C. where we caught an unbelievable amount of springs and coho. Unfortunately for the guides, there are absolutely no Americans showing up to fish and only two boats out of twenty were booked for the day after I fished. They may say that the Canadian economy is creating jobs, but the average guy/business is not doing well. I wonder where those 28K jobs were created last month as they sure were not where I live and not where I just went.
OT, but end of the world is never OT here.
Northeastern Japan just had a 7.1 quake. Some disasters never end
heck we can't export exports,
we cant export treasuries
Maybe we can export banksters (brokers in sheeps clothing)
Here is one eye opener, total importer nations and total exporter nations.
The Entire rest of the World Combined Total
Of the Exporters is $1,356B
Keep this number in mind when you hear QE numbers like $1200B handed to bankers/brokers, who, instead of making loans to people and businesses, then loaned it back to the government so the taxpayers could pay interest on money that was originally stolen from them anyway.
http://oahutrading.blogspot.com/
the lack of overseas demand was entirely predictable and the actual reason for QE2. It will also be the actual reason for QE3
Tyler,
I think you're operating under the assumption that indirects are foreigners. That's not necessarily true.
and...
http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html
So foreigners have plenty of company in the indirect bid category.
A slightly more complete breakdown of the auctions can be found here:
http://www.treasury.gov/resource-center/data-chart-center/Pages/investor...
(not that anyone should believe Treasury)
Participation distribution looks suspiciously unchanged at a glance to me.
I think it is more likely that somebody who used to bid indirectly, now bids directly.
THANK YOU, Mark. Finally, someone who understands what the hell he's talking about concerning govt paper auctions. Tyler doesn't get it. Foreign demand for govt bonds is huge.
Until the Fed is audited, none of this is to be trusted. Christ aren't recent events (ST-POMO) enough to prove that?
Don't put words in my mouth, David, and don't insult Tyler. He's one of the very few people even questioning Treasury demand. I was only pointing to a different steaming pile of dung.
I've spent an embarrassing amount of time digging through Treasury Data, and I still don't "get it." I think that is exactly the point of the convoluted system used to "report" on Treasuries - obscuring the truth.
What I've learned is that foreigners don't "own" Treasuries, at best you can say they "trade" them. They're constantly in transit - so I don't see much value in knowing who made the initial purchase...it's window dressing, as is the "Major foreign holders" report.
Goddamn it, this is the 21st century! I should be able to type in a CUSIP and find out exactly who owns it at any given microsecond, instead we get reports that drift so far before adjustment, they're garbage. AND those annual adjustments are still labled "preliminary." By the time any data is "finalized" a new Treasury Secretary's in office.
I don't believe China "buys" our paper in any meaningful sense (and by that I mean bearing all the risks associated with ownership). If anything, they get extraordinary guarantees for making us appear credit worthy (spoiler alert: We're not).
But hey. as long as it appears that somebody buys this crap, the government gets blank checks to spend, and nobody has to pay taxes! So rigging the auctions is the gift that keeps on giving. Without the artificial demand, the debt ceiling debate grinds to a halt.
I made an attempt to explain this a while ago:
http://www.zerohedge.com/article/guest-post-dirty-secret-debt-ceiling-de...
before that, I wrote Timmay a letter:
http://acrossthestreetnet.wordpress.com/2010/08/22/a-letter-to-tim-geith...
(still no reply)
and before that:
http://acrossthestreetnet.wordpress.com/2010/09/16/treasury-is-re-writin...
and befor that:
http://www.zerohedge.com/article/guest-post-candy-strangers-or-who-buyng...
There's nothing in any of this that indicates anybody actually wants US debt....
You are either incredibly obtuse or you must jest.
Is this the reason that The Federal Reserve bought anywhere from 50% to 70% of all USTs during most months of the last 24 or so?
Rosie has explained it over a dozen of times: There is a secular change in investment mentality underway for the baby boomers. They are shifting their assets from equities + real estate to bonds. More and more bonds as a percentage will be bought by US households and corporations, less by foreigners.
Here we go again! Another useless article about foreigners no longer desiring US bonds. What a joke! I've been hearing this same argument for 10 years. And guess what? Bond prices keep going up, up & away. There is HUGE demand for govt paper. The 30 yr bond price is headed for 150 (2% yield). It will happen within 2 years. Shorting T-Bonds is a fool's game.
You are of course 100% correct. The bond vigilantes have been harping on the same story for years now. Domestic demand for bonds is huge because inflation expectations are low. 10y break even inflation is ~2% and the 10y is at 3%. This is a kick in the teeth for the inflation hawks.
I like your alias, Ben. Stuffing the poor goose full of lemon cookies until it's way beyond natural lipid levels is what you're best at.
Domestic demand WAS huge because Fed has bought $2.4T with freshly printed dollars, and that's just what you admit to.
They should sell it to AM/PM stations and you will see profits. I guess the toasted bread is out of the question.
Near Default, Quiznos Taps Advisers
http://online.wsj.com/article/SB1000142405270230354460457643419264253866...
No one is going to buy bonds.
They are going to crash to 60 % and lower, with yields north of 8 %.
Junk status.
Everybody buying U.S. bonds knows that he will never get his money back.
With unfunded liabilities of >$200 tn, who would be mad enough to sink his hard earned money there ?
Someone who thinks they'll scare people back into bonds with a risk crash and those yields will drop like a rock.
Someone like me. After that, it will be time to go short though.
This was a giant card game but many nations ran out of cash after the the first few hands. So they all wrote each other IOU's and kept playing for 40 years... Now nations find themselves holding trillion dollar markers that no nation can pay.
So I am thinking the loan shark nation who brings the war is the end game. Interesting times. The biggest a-hole at the game was Uncle Sam who gave enormus free IOU's to nations that hate him and bankers who used him.
Don't know if this is true or not, something about China wanting to build a city in Idaho. I wonder if minimum wage laws will be upheld?
http://m.examiner.com/examiner/pm_60959/contentdetail.htm?contentguid=AM...
So what return (interest rates) do foreigners wan tto hold a bunch of USA Debt backed by jobless consumers?
Those are figures for indirect bidders, which aren't all foreign. Better read this:
http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html
Also, of course, the auction data misses foreign purchases from the secondary market.
The only really good timely indicator of foreign interest is the foreign central banks' holdings of Treasuries in Fed custody. But it misses private foreign interest.
I read that, Merkel, the runner-up for the next Nobel Peace Prize Winner---after Sarkozy---just sold 200 Super Modern German attack tanks to Saudi Arabia Dictatorship....mmmm...I guess to protect The Civilians?
http://www.muscatdaily.com/Archive/Gcc/Merkel-defends-silence-on-reporte...
IN turn, SA promises to buy how much of German Debt I wonder.....