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Thursday, April 06, 2017

If The Fed Sells Treasury’s…Who Will Be Buying?

From 2008–>2014, the US Treasury nearly issued as much debt as it had in the previous 230+ years.  But the proportions bought and held by these creditors significantly changed (depicted by middle column in the chart below).  Intra-Governmental surplus funds were dwindling so the buyer of nearly half of all Treasury debt up to that point took a back seat, buying only 8% of the new issuance.  No surprise, it was the Federal Reserve and Foreigners that bought 2/3rds of the issuance, maintaining a strong bid.  The Fed sold all it’s short term bills and notes and went large and long.  And foreigners apparently just couldn’t get enough.
But since QE ended in late 2014, the make-up of the new buyers / holders of US Treasury debt is totally different (depicted in the right column of the chart below).  Obviously, the Fed Reserve has purchased nothing (on a net new basis…of course they have been buying to replace bonds rolling off, but no net new buying) and since the Fed ceased buying, Foreigners (net) have sworn off US Treasury debt and sold $200+ billion.  So the only buyers for the continuing issuance and the portion not rolled over by foreigners  is the domestic public (with an assist by the dwindling Intra-Governmental surplus).

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