Visualizing The Upcoming Treasury Funding Crisis

Tyler Durden's picture

In his interview yesterday Julian Robertson expressed substantial concerns about the ongoing US debt funding threat, using words such as "Armageddon" to describe what will happen when and if China and Japan stop buying US debt. More disturbingly, as was pointed out on Zero Hedge first, and was subsequently picked up by the WSJ, the Fed has accounted for half of all Treasury purchases in Q2 ($164 billion of total of $339 billion).

Below we present data for what could be construed as a Treasury funding crisis borne out of lack of demand for longer maturities, once the QE portion of UST purchases expires. This crisis could hit as soon as October.

The first chart highlights total UST foreign holders as per TIC data:

Of which holdings of bonds was almost flat:

Yet bills were up a whopping $400 billion:

Summary: foreign purchasers are congregating exclusively around the front end of the Treasury curve, meaning that the primary net purchaser of dated bonds has been the Federal Reserve. As everyone knows by now, the Fed only has $10 billion left out of the $300 billion total allotted for Treasury QE. That should expire next week. The question then becomes will we see another major steepening leg in the UST curve as yields on long-dated paper finally catch up to the real supply-demand curve absent the Fed's manipulation of the equilibrium point. Or will we see an outright funding crisis as foreigners pull out entirely of all treasury purchases, not just Long-term USTs.

The time of unravelling may be upon us sooner than most think.

Compliments to Gunther for the primary data.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
pivot's picture

government realizing it cannot fund itself is likely best remedy to the problem.  but then again, what do you think this rally has been for? except to set up another scare back to UST?

koaj's picture

as long as you and i and Mao have faith in the Federal Reserve Note, this charade will be allowed to play out


so if you want to force end game...take your money out of a TARP bank, starve the beast. wait until year end to pay your quarterly estimates

Anonymous's picture

The Fed institutionalized moral hazard with the Bernanke, Paulson, Geithner Greenspan Puts, distorting markets and
destroying the economy.

Whether by design or default interesting discussion.
Result the same.

If indeed there is a scare, will it go to dollars, gold
or bills?

Won't Gilts fall further?

Interesting to hear the mikes at the Ron Paul Hearing
break: witness complained he just couldn't get
through to Frank et al.

No kidding...

Anonymous's picture

Speaking of scooping the WSJ:

Lone wolf Fed Guv says iRates may be about to leap:

etrader's picture

If the Mid east kicks off , then wont that force some long end buying?

The war drums are already starting to sound out.

. . .'s picture

Congress can help address its funding gap if it shuts down the Obama administration's give-away of 85% of cap-and-trade carbon emissions allowances, and instead auctions all of them off.


As you know, the EPA is looking to pass regulations creating a cap and trade program.  You should consider starting a petition to have the relevant state (or DC) attorneys general investigate the EPA attorneys that have advised the EPA it has authority to issue the regulations.  If the EPA doesn't have legal authority to issue the regs, and the EPA lawyers bad opinions saying they do have authority, the EPA lawyers may not be acting ethically and may be subject to penalties, like having their license to practice law suspended or revoked.

Ragnarok's picture

Bernanke just has to show these three charts to the democrats, get the debt ceiling raised and fire back up the printing presses. 


Unless Obama is willing to sacrifice Governors and House Democrats in the mid-year elections for more crisis = more control?  Hmmm....

DaddyWarbucks's picture

I think we're willing to sacrifice them. Let's all meet at the top of that volcano in Hawaii, say next Tuesday around noonish?

Ragnarok's picture

Hey, we could have a luau. 

monmick's picture

Yeah, the long rates will start going up soon, but NOT because of supply-demand issues but RATHER because of the Fed's independence being compromised by, among other things, HR-1207.

At least, that is the line we will be hearing with increasing frequency in the coming weeks... 

Missing_Link's picture

Why do you have a terrorist as your avatar?

gmrpeabody's picture

And since you asked...,

We all would like to know why you chose a fairy.

MinnesotaNice's picture

Yep, cough it up Missing Link... I've been wondering also... I bet there is story that goes with it  :-)

Hephasteus's picture

Haha. Nobodies figured out what my pic looks like.

MinnesotaNice's picture

OK... I'll play... I have noticed you avatar wondering what it is... so give it up...

Hephasteus's picture

I don't know why I like it so much. It's like the finder icon on Mac OS/X though I don't use mac's but it's picassofied. I found it right before I started digging into financial stuff.

Because I have a very specific set of skills that make me a nightmare for people who want to hide things. I will find you. I will hang you (Like the hanged man in tarot). I will make you confess. ;)

All the people who are here. Are not here for the reasons they think they are here. This makes things very hard to predict. Nothing unnerves control freaks like unpredictability.

legerde's picture

My avatar is the only future use of the USD.

defender's picture

*cough* ummm...about that...when they said that the fed would have to start printing larger bills, and I could be wrong about this, but I think they meant the denomination would be larger...

Anonymous's picture

fairy? sacriledge!

that is clearly Link, from the Legend of Zelda series of video games, a force against darkness and evil!

Anonymous's picture

Its not a fairy, its a character from a Nintendo video game. His name is Link.

Anonymous's picture

Shouldn't you have put that under the Bernanke avatar?

LoneStarHog's picture

Please define "terrorist", as people's avatars include Obama, Bernanke, Paulson, Geithner,, and you have not questioned them.


Anonymous's picture

Che killed people directly, not through monetary policy. He was a murderer and terrorist.

Anonymous's picture

If an individual kills people directly, he's a murderer and terrorist?

I think I must agree with you.

How about if an individual has an army or other organization to do the killing for some policy or ideology, which the individual triumphs?

No difference, whether he is the head of a state or a corporation. How about those corporations and entities, who provide the tools of murder - the members of the UN security council in their dark global games of dominance?

Some times their interest coincide and sometimes don't. - in the end what we see and hear is the ultimate theatre they together weave for us to obfuscate what has really happened.

It's murder incorporated.

We are living in a world where some killers are championed, and some are executed (And what are those people who order the executions by you definition?)

So Che fits nicely in.

Too bad he wasn't invited to the party, but he crashed it.

percolator's picture

The people you spoke of are the REAL terrorists.

Bam_Man's picture

Che was a marxist revolutionary, not a terrorist.

Big difference.

Anonymous's picture

Same thing. I bet a lot of people felt terror at Che's hand.

Anonymous's picture

His murdered victims and their families disagree with you.

Anonymous's picture

Yeah, yeah. At least he didn't do it with drones from 10,000 ft.

Cognitive Dissonance's picture

One man's terrorist is another man's freedom fighter. Weren't America's founding fathers terrorists (sanitized with the word "revolutionaries") in the eyes of the British?

I know that's tough to swallow because of the American myth of superiority (BTW I'm a natural born US citizen) but the world doesn't revolve around America, which we are about to discover first hand when the rest of the world stops buying our debt.

But I digress.

gmrpeabody's picture

It seems to me that there is a difference, slight as it may be. A revolutionary is sanctioned by a/the state (this is who we are, and this is where we live, and this is why we fight). Terrorists lack state sanctioning, preferring a murky, low lying, hit and run kind of tactic which suits their murky reasoning, mask wearing rational.

Anonymous's picture

Incorrect. A terrorist targets civilians intentionally with the intent to cause terror. It does not matter whether the state sanctions it or uses regular military forces.

That is the only proper definition. Thus, a non-state sanctioned actor, such as a revolutionary, can target non-civilians and not be a terrorist, although they will most certainly be branded one by the state.

Calling all non-state actors terrorists is both inaccurate and dishonorable to victims of actual terrorist acts, both state-sponsored and not, worldwide.

Whether Che Guevara was a terrorist or not, then, depends on who he killed and why (collatoral damage to civilians is not terrorism). If the 'victims' served the security forces in an armed conflict, they are not 'victims'. They are casualties. Again, honor and truth demand that they not be robbed of the proper respect due to those who take the risks of service to their nation. A member of the military who falls in battle is not a 'victim'. That is demeaning.

monmick's picture

I hesitate to join this debate, even thought it was started, apparently, by my choice of avatar. However, I think the point needs to be made that killings and murders, or more generally the loss of life, is not an essential element in defining terror... 

Assetman's picture

It is when you're on the wrong end of the gun barrel.

Hephasteus's picture

It's the first part of it. First you do "dirty deeds" kill people, then you get "juice". Other people respond differently knowing that you will go that far.

Cognitive Dissonance's picture

What "state" sanctioned the American revolutionaries? They were a minority. The clear majority favored staying British and the rest were equally divided between rebeling and "leave me alone, I have no opinion". Our so called founding fathers were a clear minority and not very popular.

The myth is that the vast majority of colonists wanted independence. This was absolutely not the case, though our grade school "history" (some would say propaganda) books would lead you to believe otherwise. Remember, the victors write the history books to support what they wish people to hear and read. Even in America.

In fact, if you read the memories of the founding fathers, they were extremely worried about public opinion when they were composing their declaration of independence as well as fighting the war. Why do you suppose it was so hard to supply Washington's army with men and supplies if everyone supported them? 

BTW, something never discussed in the history books is the fact that the King of England was attempting to force the (central bank) Bank of England down the throats of the colonist. The wealthy in America (the instigators of the revolution, not the traditional poor) did not want this and I would argue (based upon my readings) is the real reason behind the revolution.

gmrpeabody's picture

I stand clarified...

My only point was that revolutionaries are more in the open and less likely to kill just for the sake of killing. Generally, they are not anachists.

Anonymous's picture

Bullshit. Che was a callous sociopath who hid his violent streak under the guise of revolution. My wife's grandfather knew Che Guevera, and described him as evil and arrogant. Anyone who lauds Che deserves his fate.

And to the other shitbag who criticizes drones--if Pakistan won't deal with its extremist problem, then we should and we will. If you don't like it, move there and throw acid in the face of schoolgirls like the rest of the Taleban.

monmick's picture

Alvarez just confirmed this almost word-for-word in answering a question.

Q: What would happen if HR-1207 became law right now?

A: Blah, blah, blah... higher interest rates,... blah, blah, blah...

monmick's picture

My apologies for the length of the cut-and-paste, but this articles provides an indication of what one of the Fed strategies will be in the next little while...

Fed’s Alvarez Says Audits Could Lead to Higher Rates (Update1)

Share | Email | Print | A A A

By Craig Torres and Scott Lanman

Sept. 25 (Bloomberg) -- Federal Reserve General Counsel Scott Alvarez said audits of monetary policy by the U.S. Congress could lead to higher interest rates and reduced confidence in central bank policy.

Congressional audits of monetary policy could “cause the markets and the public to lose confidence in the independence of the judgments of the Federal Reserve,” Alvarez told the House Financial Services Committee today in response to a question from Representative Dennis Moore, a Kansas Democrat. Alvarez said in his prepared remarks the audits would probably “chill” the central bank’s discussions on interest rates.

Fed Chairman Ben S. Bernanke and his colleagues are trying to persuade lawmakers not to pass legislation sponsored by Representative Ron Paul of Texas that would repeal the central bank’s immunity to audits of monetary policy. Fed officials used emergency powers to protect creditors of Bear Stearns Cos. and American International Group Inc. during the financial crisis, prompting congressional scrutiny.

“We don’t want to give the rest of the world or, more important, domestic investors the impression that we are somehow in a formal way injecting Congress into the setting of monetary policy,” said Representative Barney Frank, a Massachusetts Democrat and chairman of the committee. “That could have a very destabilizing effect.”

Frank added that “a lot needs to be done” on Fed transparency and said that Congress can accomplish that without interfering with the independence of monetary policy decisions.

Remove Exemptions

Paul’s legislation would remove Fed exemptions from audits in four areas: transactions with foreign central banks; deliberations on monetary policy matters, including discount- window operations; transactions made under the direction of the Federal Open Market Committee; and communications and discussions between the Board, the reserve banks and staff.

Frank said he supports a delay in making some Fed information public, such as the securities it buys and sells, so it doesn’t have a “direct market effect.” Alvarez told Frank that the Fed is “giving serious consideration” to that idea and would be “happy to work with you on it.”

In an interview after the hearing, Paul said the audit powers in the bill may be altered to delay by three to six months releasing information on FOMC actions. The legislation is likely to be included in a broader Democratic package of financial-regulation changes in the House, he said.

‘Gentleman’s Agreement’

“It’s a gentleman’s agreement” with Frank, Paul said, adding that Frank fulfilled an earlier agreement to hold a hearing. “That doesn’t mean it will happen in the Senate,” even as prospects in the upper chamber are improving, Paul said.

In the hearing, Paul told Alvarez that the Fed had “failed” to stabilize interest rates, prices and employment, according to its mandate. “What we need is more oversight and more transparency rather than more authority to the Federal Reserve,” Paul said.

Alvarez said GAO audits of discount-window lending could reduce the effectiveness of “these facilities in promoting financial stability, maximum employment, and price stability.” The legislation could also “disrupt” the Fed’s relationships with foreign central banks, he said.

“Monetary policy independence prevents governments from succumbing to the temptation to use the central bank to fund budget deficits,” Alvarez said in his prepared testimony. “Financial markets likely would see the grant of audit authority to the GAO with respect to monetary policy as undermining the Federal Reserve’s independence.”

The legislation has 295 sponsors in the House, including every Republican member, Rachel Mills, a spokeswoman for Paul, said in an e-mail yesterday.

The Fed is facing other challenges by Congress, including a proposal to strip the central bank of its rule-writing power on some consumer financial products.

To contact the reporter on this story: Craig Torres in Washington at

Last Updated: September 25, 2009 14:25 EDT