That is Heroic, Really, for Brian Reynolds to Assign
the number of 15 beeps, as his way to measure the cumulative, current effect of foreign purchases and holdings of US T-Bonds. But you wouldn't find me either trying to assign such a number, or believe it could be done correctly by anyone--including Reynolds.
How many beeps shall we assign to the absence of foreign CB selling of US T-Bonds? No, I am not suggesting they have any reason to sell en masse--but, equally, is it reasonable to mark these holders as permanent? I think not.
You can't throw a "so what", Mish, in the direction of foreign holdings of US Treasuries. That's too big a mountain to sweep off the table, in an analysis of the future, of what may unfold. Again, I point to Heinz's terrific depictions of the current state of the T-Bond market--and would suggest those descriptions are precisely the ones that apply to a market that is propped-up, with much of its supply in a kind of lock-up. You correctly point out that sentiment towards T-Bonds is highly negative--but that is only expressed in the part of the market that actually *trades.*
It's as though the US T-Bond market, as a result of massive, locked-up foreign holdings, is trading on a smallish "float." And here we are attempting to analyze such a market based on the behaviour of the float, only. Is that not a problem? Doesn't that explain why the current sentiment towards T-Bonds, as Heinz points out, is commensurate with what you see at a *bottom*--rather than a top?
Even if domestic demand in the US cranks hard in the midst of a severe economic downturn, it does seem prudent to continually ask what happens should the "float" of US Treasuries suddenly expand.
It seems nearly impossible that in a housing led downturn that the USD would linger for long, before heading lower. That creates pressure.
If stocks start plunging and housing starts plunging, 4% on treasuries will start looking pretty damn good, not to foreigners perhaps, but to those here.
Indeed. But how long does this last for? What if yields on the Ten Year are driven quickly to 2.00% or even 1.00%? Would that not be a great opportunity for foreign sellers to unload?
Also, what if the available capital domestically is damaged enough, that there is simply not enough liquidity to drive domestic demand for treasuries to the levels you forsee? Does the majority get out of other assets quickly enough, and with enough capital, to drive the T-Bond market forward in such a big way?
Regards,
LP |
