Who are the Buyers of US Treasuries

October 26th, 2015 6:23 am | by John Jansen |

Via the FT:

Why the shift in Treasury bond ownership matters

New buyers are more price sensitive so demand could be more volatile

Who is buying US government bonds and what are the market implications, ask strategists at TD Securities.

Data show China has sold $200bn of Treasuries so far in 2015, highlighting a trend for central banks to cut their purchases of US paper. The Federal Reserve is also no longer adding to its portfolio.

Yet yields remain suppressed, so others are soaking up supply.

TDS scanned official Fed data, which is three-month delayed, and what it terms “higher frequency indicators” to get a more up to date reading of demand.

“Mutual funds have emerged as one of the strongest sources of Treasury demand so far in H1, buying $82bn on an annualised basis,” says TDS.

“We believe this is a function of hedging demand against risky assets as well as a shift away from other lower-yielding bond markets globally.”

Private foreign investors are also increasing their Treasury holdings, reckons TDS — though it admits such purchases are hard to pin down definitively with current reporting methods.

This shift in ownership matters because the actors behave differently.

“Price insensitive buyers (such as foreign officials, banks, and the Fed) have been replaced by price sensitive buyers. This suggests that demand for Treasuries could become somewhat more volatile . . .”

The new owners may also be more sensitive to moves in alternative investments, so “the correlation between 10yr Treasury yields and risky assets as well as global developed market rates should remain strong”.

jamie.chisholm@ft.com

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