Who Is Selling U.S. Treasuries?

We know that over the past several weeks we have seen a significant rise on the interest rate on long treasuries. Of course that means that prices are moving lower, indicating that demand is waning.

(Chart below shows the yield curve for treasuries as compared annually. Notice the significant change on the long end.)

Last week, Russia and Brazil indicated that they are less willing to purchase U.S. sovereign debt and China is starting to protest as well. All of that leads to the concern that interest rates are rising for mortgages. As we know, that is not welcome as that raises the long-term price on housing, making is less attractive. This is choking off the ability for homebuyers to get deals on mortgages.

Of course that will postpone the hoped for recovery in home prices across the country.

Along with the concern about Brazil, China and Russia, we are now seeing evidence that primary dealers' inventories are dropping. This is due to both sales by investors and foreign countries. Now the Fed will have to once again increase their balance sheet and buy treasuries in an effort to keep rates down.

So far, that it is not working as planned. Let’s face it. The world’s investors are not stupid. They see the reckless spending binge that the U.S has been on and they want no part of it. Why would they buy U.S. treasuries of they know that the dollar is being systematically devalued and that rates will be higher in the future.

This is why we are continuing with our investment in the Proshares 2X inverse 20+ Treasury ETF (TBT). We have recently reduced our position, booked some nice profit on it and will consider increasing it as the chart dictates.

Comments

[Moon Kil Woong:]

Thwe title is a bit strange. The Fed is of course selling Treasuries. The rates are increasing not because people are dumping them but because less people want to buy them even though the amount issued is increasing.

Andrew is right in the fact that the lack of people willing to buy them will constrain the Treasury and Fed. Apparently, it hasn't constrained either the Bush Jr. andministration and Republican Congress or the Obama administration and Democratic Congress.

I suppose they continue in their blissful dream that the world will buy as much junk paper as they want to spend.

Jun 22 10:26 PM

[BondMan:]

The FOMC meeting should be exciting. What is your take on QE?

Jun 22 10:56 PM