Quote (Malopox @ Dec 4 2023 10:25am)
Yes that is true, China has reduced by about $150Bn since Jan 2022 and a premium has to be paid if there is less interest. Question is - who is the marginal buyer at these auctions right now? Perhaps ^ofthevoid can chime in?
I also see that a lot of Europeans are being tempted by MMF investments instead of deposits as those yield higher (e.g. Revolut offers those). MMFs invest a.o. in Treasuries.
What has been happening with treasuries is not that foreigners are selling per se but rather as their holdings are maturing they aren't re-buying but just letting that roll off. They aren't buying for several reasons.
I think one of the bigger reasons why bonds are doing bad with lack of interest is that on average a bonds return over the last 30 years was around 7%. When money markets/short term treasuries that have no interest rate risk are yielding 5-5.5% it just makes more sense to be holding cash vs take on that IR risk.
Another big reason is it's pretty much confirmed that the US is in a debt spiral. We haven't shown any willingness or seriousness about getting debt or deficits under control. So why would foreigners load up on long term US debt? They really got burned over the last 2-3 years with some of the long duration bonds losing like 20-30% fair value-- and this is investment grade US treasuries and MBS not junk bonds.
The marginal buyer that will step in is going to be domestic pension funds, 401k's etc. There's trillions sitting in money markets that once rate starts to budge to the downside you will have that money probably flow back in. In the near future, we, the US will basically own our own debt. Something like 70% is already domestically owned, that will continue to grow IMO as the US starts to fade as the global hegemon.
This post was edited by ofthevoid on Dec 4 2023 10:16am