A topic we have been investigating recently has been the sudden surge in direct bidding, at least as it pertains to the near end of the Treasury curve, and what the identity of the actual entity doing the buying may be. Explanations offered have ranged from China and Petrodollar accounts buying covertly, to primary dealers ramping up their activity to justify to the Fed that they are worthy for admission, all the way to the Fed conducting yet more 'under the radar' QE purchases. Today we present the opinion from Barclays, which provides another, fourth, view on things, theirs being the most benign one, namely that plain vanilla accounts have been purchasing Treasuries via the direct bid.
Ultimately, as the end-identity of the direct bidder is never disclosed, this is yet more speculation. Yet, as we disclosed, with an up to $700 billion hold that needs plugging on the demand side, the Treasury needs any and every possible source of interest for bonds. We highlighted why we believe mutual funds and money managers will likely prove to be a drop in the bucket in light of ths supply onslaught. Furthermore, we have yet to see a pick up in direct interest toward the dated side of the curve, which is by far the greatest wildcard in terms of UST demand.