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There's $10.5T in U.S. government debt and still not enough to go around. Bond dealers are...

There's $10.5T in U.S. government debt and still not enough to go around. Bond dealers are hoarding the good stuff, offering just $7.2B in Treasurys to the Fed (buying due to The Twist) in June vs. $12.1B/day in October. "People are not willing to sell Treasurys," says a fund manager. Let yields rise 100 basis points and we'll see who's not willing to sell. (see also)
Comments (17)
  • Definitely outrageous to see the high demand for Treasuries at this point. S&P 500 index is a much better long-term investment any day.
    9 Jul 2012, 10:17 AM Reply Like
  • S&P500 has much more room for the downside currently than Treasuries.
    9 Jul 2012, 10:22 AM Reply Like
  • Not if 10-yr yields rise to 2-3%.
    9 Jul 2012, 10:25 AM Reply Like
  • Depends on your timeline/horizon. As a younger investor, having any capital in treasuries at this point is a recipe for "return-free risk"
    9 Jul 2012, 01:02 PM Reply Like
  • And how likely do you see that happening to Treasuries in the next 3 years with the Fed acting the way it is? Not to mention flight to safety into Treasuries if Europe blows up.
    9 Jul 2012, 01:35 PM Reply Like
  • 'Flight to safety' is already occuring. QE3 potential (and QE4..?) is already priced-in.


    If QE3 takes place, i/r should stay stable. If QE3 is denied, rates will skyrocket. Seems like far more upside than downside on this trade IMO.
    10 Jul 2012, 02:00 AM Reply Like
  • No one 'lets' yields rise. The market dictates their yield.
    9 Jul 2012, 10:55 AM Reply Like
  • Exactly. It's like saying "let prices drop 5% and then see who's not willing to sell". Obv, as prices drop, yields increase.


    Yields are low because demand is high.
    9 Jul 2012, 11:09 AM Reply Like
  • It was a hypothetical statement- a sort of figure of speech. Not as in "if they let," more like "let's see what happens if?"
    10 Jul 2012, 02:01 AM Reply Like
  • Thumbs up! :>)
    10 Jul 2012, 06:42 AM Reply Like
  • BS story to keep illusions up.
    9 Jul 2012, 02:47 PM Reply Like
  • Everybody is right. Everybody is wrong. The Fed printing money, Operation Twist (which keeps the yield curve from inverting) and other such shenanigans are distorting capitalism. Just like a tsunami makes the shoreline retreat just before the wall of water hits. You watch. Both the stock market and bonds will rise in value--but not the way people expect--just like in Zimbabwe.
    9 Jul 2012, 03:04 PM Reply Like
  • I highly doubt this outcome for a number of reasons. Base money supply, which the Fed is accountable for expanding under it's QE efforts (which OT isn't really QE), is a tiny fraction of total money supply when accounting for credit debt. That doesn't even account for other promised obligations. Total money supply (money + credit) and the demand for money or credit is what drives inflation or deflation The world is awash in debt right now. Any Austrian school economist (amateur or otherwise) knows that Ludwig von Mises himself even said that deleveraging itself is unavoidable. No one wants credit, and all the Fed is doing is trying to keep the total money supply in positive territory. They will fail, because they simply have no ability to 'print' (monetize) many tens of trillions of dollars. It is political suicide for the Federal Reserve to contemplate such an action, when people are furious over a few trillion. The Fed also cannot keep credit flowing, because no one wants credit! The money multiplier is stuck in reverse.
    9 Jul 2012, 04:58 PM Reply Like
  • Guessing when and what the Fed will do next is tough, but one thing they will probably do soon is charge banks to park their reserves at the Fed. This will have the effect of negative interest rate for member banks and will encourage the trillions that are parked at the Fed to be used to make loans. (If they can find borrowers, the classic pushing on a string problem) The banks could also start buying equities and corporate debt. There is a 10X multiplier, so it will not take much to make a huge difference in the money supply in the real economy. Bailing out FDIC and Fanni and Freddi are also on the table as this debt bomb explodes. There is no limit to how much money they will counterfeit. Debt growth to infinity, until it collapses.
    9 Jul 2012, 08:29 PM Reply Like
  • There is no 10x multiplier. To my knowledge, that was supposed to be a limitation of fractional reserve banking that has not been a factor for a long time. Thank Greenspan for that. In any case, the multiplier effect isn't working very well right now, because there isn't an issue with credit -- fewer and fewer people want it, even if it's free.
    10 Jul 2012, 10:03 AM Reply Like
  • Correct. It doesn't matter if the 30-year mortgage rate is 3% or -1%. People are scared to commit to buying a home in these uncertain times, and banks are even more scared to lend those people.
    10 Jul 2012, 10:10 AM Reply Like
  • What is somewhat funny about this is that it's not just that 30-year yields are that low by itself. You have non-recourse loans in many states as well. It just shows that policy levers of easy/free credit and favorable loan terms for borrowers doesn't fix anything when the economy has begun to delever after a massive, historic buildup of credit debt. The hangover can no longer be cured by drinking more -- and the people drunk with debt don't want another drink, even if it's on the house.
    10 Jul 2012, 01:09 PM Reply Like
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