U.S. Treasuries Are Selling Like Hotcakes ... But to Whom?

Includes: TBT, TLT
by: Wall Street Strategies

Boosters of more government spending are saying all the cash thrown against the wall thus far hasn't hurt the U.S. or its reputation in the world. They point to our Treasuries and the notion that someone must be real impressed to give up money for ten years.

I must disagree; this isn't a Sally Field moment. They may like us but don't think they really like our paper that much. Sure, the auctions are going well, and someone is buying up all that paper, but it's not like we need to put up a velvet rope to control the flow of investors so eager to scarf up government debt. Fact is the world has been selling government debt, or simply holding the line, except for the curious case of the United Kingdom.

I'm not sure why the UK has increased its U.S. Treasury holdings to $362.2 billion through June 2010 from $90.8 billion a year earlier. I don't know why the UK is buying up so much of this super low yielding paper. There has to be some kind of backroom deal on this situation. Of course, for many nations, 2.57% over ten years is worth the price of admission considering their own economic dire straits. But, there is something odd about the appetite from the UK and Hong Kong ($141.0 billion from $95.7 billion year over year). (Click to enlarge)

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U.S. Treasury Holding Trends

* China's Treasury holdings are down $96.2 billion from last July to this June
* Japan's Treasury holdings up $95.4 billion June to June
* Oil exporter's holdings up $12.0 billion
* Brazil holdings up $22.9 billion

* Intergovernmental ownership is $4.528 trillion
* Public ownership is $8.786 trillion

Click to enlarge

Click to enlarge

So, the notion that everyone is buying our debt, and therefore the idea that the mountain of debt is mitigated or not a big deal is a folly. Moreover, it's just weird that the Fed buys Treasuries and takes the proceeds and gives most of it to the Treasury. Monetizing debt is like playing Russian Roulette with all but one chamber in the gun filled with a round.

Disclosure: None