US Households Now Own More Treasuries Than The Fed

One of the key concerns voiced by finance professionals, politicians and rates traders over the past year, has been the gradual drop in foreigners as a percentage of the total universe of US Treasury buyers, which peaked earlier this decade and has since declined to just below 40% of the total public US debt outstanding as shown in the chart below.

And with the Fed's treasury purchases out of the picture for the past three years, there was growing concern whether domestic buyers, and specifically US householders, would step up - whether directly or indirectly - and purchase US Treasurys.

It appears the answer is yes, because as the latest Fed Flows of Funds report revealed "mom and pop" have been aggressively bought Uncle Sam’s debt; and with yields rising and offering a viable alternative to the S&P's dividend yield, look for this trend to continue, even if higher yields will ultimately result in even greater paper losses and negative equity for the Federal Reserve.

But in an even more memorable development, as of last week, total Household investment in US Treasury bonds jumped to a record $2.28 trillion in the third quarter, for the first time since 2010 surpassing the Fed's own Treasury holdings of $2.24 trillion.

On the surface this is good news as it means that thanks to higher rates, ordinary individuals are attracted by yields that climbed as much as 83bps this year, and serve - for now - as a viable alternative to either foreign buyers or the Fed's QE at a time when US deficits are only expected to keep growing for the near and not so near future.

The bad news? The accelerating purchases of US debt may also be the latest signal that investors are concerned U.S. economic growth is going to slow, and are betting on a return of lower yields and therefore, higher bond prices.