Thursday, August 20, 2009

Record Treasury Demand

Been meaning to get to this...

The worry has been that record issuance would not be met with record demand. Lets put away that concern for the time being. AHN with the detailed:

More long-term U.S. financial assets were in demand by foreigners in June, indicating continued interest in the country's bonds, an official report said Monday.

The Treasury Department report released in Washington showed that net foreign purchases of long-term securities were $90.7 billion, compared to net sales of $19.4 billion in May.

The Treasury International Capital data noted that total foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $71.3 billion.

Total purchases of U.S. government notes and bonds amounted to $100.5 billion, the highest on records since the data collection started in 1977, compared to total selling of $22.6 billion the prior month.
And as the chart below shows, there was very strong demand for Treasuries from foreign buyers in June. There is some short-term noise (i.e. China cut their holdings of Treasuries in June), but much of this can apparently be explained by the unbelievably strong demand coming from the U.K. Of the $48.6 billion in Treasury purchases by European nations, $45.7 billion of that was made by the U.K. (yes, more than 94%!).

But why? According to Standard Charter (hat tip FT Alphaville):
The official TICS data underestimates China’s holdings, partly because China purchases debt through intermediaries - most notably through brokers in London. These do not show up in the TICS data under China’s name, but are instead classified under the UK. This ‘error’ in the monthly survey is made clear in the annual survey, which usually ends up reallocating most of the UK purchases during the previous year to China.
So while China's purchases of Treasuries has been relatively flat since the Spring, the U.K. spike may likely be those purchases.

And the long run trend shows that demand (in overall dollar terms) continues to come from China, regardless of how the purchases are being accounted for.

Top Ten Holders of Treasuries

Source: Treasury: Long Term Securities / Treasuries


  1. I have seen reports that a number of the treasuries sold were sold to foreigners and then immediately bought back by US government agencies to hide the fact that they are monitizing our debt.

    This seems to make more sense than anything else. With out trickery, increased supply with constant demand would require higher interest rates to result ... but they havn't moved.

  2. unless you believe the conspiracy theory you laid out (possible, but not probable), then there has been massive increased demand.

  3. Jake,

    As I have been saying, the U.S. has absolutely no trouble selling debt. Zip, zilch, nada.

    The Fed's recent buying of treasuries is confusing many, but in reality the Fed is only replacing the treasuries it sold during the financial panic (the fed had/has no clue imo). Moreover, imo the fed is not moving to longer dated treasuries to keep long rates down as many believe. The move to longer dated treasuries is to prevent short rates from going to zero or even turning negative.

    As a treasury holder, the thing that keeps me up at night is the fed's buying of $1.25 trillion in GSE paper. That not only appears to be illegal, it will certainly have unintended consequences.