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Posts Tagged ‘US Bonds’

Joe Weisenthal
Business Insider
Jun. 24, 2011, 12:21 PM

Despite the imminent end of QE2 — and the fact that Bernanke has made it fairly clear that QE3 is not imminent — Treasuries keep grinding higher, moving against bond god Bill Gross, who has said they’re due to tank.

Nonetheless, he’s been vocal about his belief bondholders will get screwed in various ways, and that inflation is on the march.

Now he’s even getting conspiratorial.

Here’s the latest tweet from PIMCO (which is actually probably one of the best corporate twitter feeds).

Catch that about the silver?

Back in May, when silver was literally going parabolic, the CME hiked margins on speculators. Conspiracy theorists thought this was a deliberate attempt to keep the price down, though the CME (and others) noted that the exchange has established formulas for hiking margins when volatility spikes.

We’re not interested in joining that debate right now, though we’ll just note that Bill Gross (or at least PIMCO) has thrown his lot in with the conspiracy crowd.

Read the entire article HERE.

By Terence P. Jeffrey
Friday, June 03, 2011
CNSNews

China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.

Prior to the fall of 2008, acccording to Treasury Department data, Chinese ownership of short-term Treasury bills was modest, standing at only $19.8 billion in August of that year. But when President George W. Bush signed legislation to authorize a $700-billion bailout of the U.S. financial industry in October 2008 and President Barack Obama signed a $787-billion economic stimulus law in February 2009, Chinese ownership of short-term U.S. Treasury bills skyrocketed.

By December 2008, China owned $165.2 billion in U.S. Treasury bills, according to the Treasury Department. By March 2009, Chinese Treasury bill holdings were at $191.1 billion. By May 2009, Chinese holdings of Treasury bills were peaking at $210.4 billion.

However, China’s overall appetite for U.S. debt increased over a longer span than did its appetite for short-term U.S. Treasury bills.

In August 2008, before the bank bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at $573.7 billion. That number continued to escalate past May 2009– when China started to reduce its holdings in short-term Treasury bills–and ultimately peaked at $1.1753 trillion last October.

As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.

Most of the U.S. national debt is made up of publicly marketable securities sold by the Treasury Department and I.O.U.s called “intragovernmental” bonds that the Treasury has given to so-called government trust funds—such as the Social Security trust funds—when it has spent the trust funds’ money on other government expenses.

The publicly marketable segment of the national debt includes Treasury bills, which (as defined by the Treasury) mature in terms of one-year or less; Treasury notes, which mature in terms of 2 to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30 years.

At the end of August 2008, before the financial bailout and the stimulus, the publicly marketable segment of the U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was in TIPS.

At the end of March 2011, by which time the Chinese had dropped their Treasury bill holdings 97 percent from their peak, the publicly marketable segment of the U.S. national debt had almost doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS.

Before the end of March 2012, the Treasury must redeem all of the $1.7 trillion in Treasury bills that were extant as of March 2011 and find new or old buyers who will continue to invest in U.S. debt. But, for now, the Chinese at least do not appear to be bullish customers of short-term U.S. debt.

Treasury bills carry lower interest rates than longer-term Treasury notes and bonds, but the longer term notes and bonds are exposed to a greater risk of losing their value to inflation. To the degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of March must be converted into longer-term U.S. Treasury securities, the U.S. government will be forced to pay a higher annual interest rate on the national debt.

As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement. Of that, approximately $9.74 trillion was debt held by the public and approximately $4.61 trillion was “intragovernmental” debt.

Read the entire article HERE.

By Bloomberg News
May 17, 2011 8:55 AM PT

China, the biggest foreign owner of U.S. government debt, trimmed its holdings of Treasuries for a fifth straight month in March as lawmakers debate how to expand borrowing after reaching a statutory threshold. The Asian nation owns $1.145 trillion of the debt, down $9 billion, or less than 1 percent, from the previous month, according to Treasury data released yesterday. The holdings reached a record $1.175 trillion in October.

China’s concern that U.S. government securities may become more risky because of the nation’s deficits and debt burden prompted its call this month for President Barack Obama’s administration to lay “a solid fiscal foundation” for long- term growth. Former Chinese central bank adviser Yu Yongding said last month that China should stop buying Treasuries because of the risk that the U.S. may eventually default.

China may “gradually cut its U.S. Treasuries as it seeks to diversify its foreign-exchange holdings,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. She said “China is probably routing trades through other places such as London,” meaning U.S. data may not give a full picture.

Treasury data show holdings of U.S. government debt in the United Kingdom have increased $53.6 billion, or 20 percent so far this year, to $325.2 billion.

In the U.S., Republicans and Democrats have been arguing over when and how to raise a $14.3 trillion debt limit. Obama has said that a failure to act may disrupt the global financial system and plunge the nation into another recession.
Conflicted History

China has offered critiques of U.S. fiscal and monetary policy while continuing to buy the debt. When the Fed announced in March 2009 it would buy $300 billion of Treasuries, the decision was called “irresponsible” by Li Xiangyang, of the government-backed Chinese Academy of Social Sciences, because it could weaken the dollar.

“We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets,” Chinese Premier Wen Jiabao said in March 2009 after Obama signed his $787 billion stimulus package into law. “To speak truthfully, I do indeed have some worries.”

After the Fed announced its plan to purchase $600 billion of Treasuries through June to stoke inflation expectations and boost employment, China’s vice foreign minister, Cui Tiankai, said Nov. 5 “many countries are worried about the impact of the policy.”

China increased its Treasury position 23 percent to $894.8 billion in 2009 and 30 percent to $1.16 trillion in 2010, revised Treasury data show.

U.K. Impact

Year-end revisions to Treasury data on foreign holders of its debt led to a $268.5 billion increase in China’s position in the debt to $1.16 trillion and a $271 billion reduction in the holdings in the U.K. to $272.1 billion.

The discrepancy comes in part from the different methodology used in the monthly statistics and the annual revisions. The monthly figures collect holdings data based on the location of the counterparty at the time of purchase while the revised totals reflect the identity of the owner.

“A lot of central banks have operations in London,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 20 primary dealers that trade directly with the Fed. “A lot of transactions are based in London even though the beneficial owner might be a Middle Eastern central bank or an Asian central bank. That happens quite frequently.”
Debt Ceiling

U.S. Treasury Secretary Timothy F. Geithner said yesterday that he has used accounting measures to extend the deadline until Aug. 2.

“China has kept on lending money to the U.S. to keep its export machine going, and to prevent losses” on its holdings of Treasuries, Yu said last month. “Perhaps it is too late to do anything about the existing stock without causing a serious political and financial backlash. But at least China should stop continuing building up its holdings.”

Officials including central bank adviser Li Daokui have urged diversification of the nation’s foreign exchange reserves away from U.S. debt.

Japan, the second-largest holder of Treasuries, increased its holdings by $17.6 billion to $907.9 billion in March from $890.3 billion in February. Hong Kong, counted separately from China, reduced its holdings by $2.5 billion to $122.1 billion from $124.6 billion.

Read the entire article HERE.

By Vincent Del Giudice
May 16, 2011 8:21 AM PT
Bloomberg

Global demand for U.S. long-term financial assets such as government bonds slowed in March as investors shifted into shorter-term securities and China trimmed its portfolio of Treasuries.

Net buying of long-term equities, notes and bonds totaled $24 billion during the month, compared with net buying of $27.2 billion in February, according to statistics issued today in Washington. Including short-term securities such as stock swaps, foreigners purchased a net $116 billion, compared with net buying of $95.6 billion the previous month.

The Treasury’s reporting on long-term securities helps gauge confidence in the U.S. economy as well as fiscal and monetary policy. The data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.

“Foreigners had a little more confidence in the recovery in March,” and they shifted into swaps, equities and riskier assets from Treasury securities, said Kevin Chau, a foreign exchange strategist at IDEAglobal in New York.

China remained the biggest foreign holder of U.S. Treasuries, after its holdings fell by $9.2 billion to $1.145 trillion in March from $1.154 trillion in February, according to the Treasury’s statistics.

Japan, Hong Kong

Japan, the second-largest holder, increased its holdings by $17.6 billion to $907.9 billion in March from $890.3 billion in February. Hong Kong, counted separately from China, reduced its holdings by $2.5 billion to $122.1 billion in March from $124.6 billion in February.

Before today’s report was issued by the Treasury, economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $33 billion in March. Seven economists participated in the survey, and their estimates ranged from $10 billion to $45 billion.

Total foreign purchases of Treasury notes and bonds were $26.8 billion in March compared with purchases of $30.6 billion in February. Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac registered net buying of $9.49 billion in March after selling of $1.49 billion in February.

Net foreign purchases of equities were $14.7 billion in March after net purchases of $6.1 billion in February. Investors purchased a net $3.77 billion in U.S. corporate debt in March after selling $2.54 billion in February.
Slower Than Forecast

In the first quarter, the U.S. economy grew at a slower- than-forecast annual rate of 1.8 percent as government spending declined by the most since 1983, according to Commerce Department statistics released April 28. In the fourth quarter of last year, gross domestic product grew at a 3.1 percent annual rate.

In emerging European economies, public finances have “sharply deteriorated” and banks are burdened by “large numbers” of nonperforming loans, the International Monetary Fund said in a report May 12. The European Union and the IMF were forced to organize bailouts for Greece and Ireland last year and are preparing a rescue plan for Portugal.

China and the U.S. remain at odds over foreign exchange policy. After meetings last week in Washington, Chinese Deputy Finance Minister Zhu Guangyao said the U.S. and China agree that the yuan should be allowed to strengthen. However, “the view from the U.S. side is that the yuan should rise continuously at a faster appreciation pace,” Zhu said. “We have differences on the degree of appreciation.”

Read the entire article HERE.

By: Patrick Allen
CNBC EMEA Head of News
Wednesday, 4 May 2011 | 6:13 AM ET

The Co-CEO of bond giant PIMCO, Bill Gross, has warned investors that holding US Treasury’s is an “abdication of responsibility” in his May note to investors.

“US Treasurys and the bond market in general are being ‘repressed’, ‘capped’ or simply overvalued compared to the prior 30 years,” Gross wrote.

With the Federal Reserve’s policy keeping yields low, Gross believes investors are being short-changed and that yields would be higher without the Fed’s unconventional measures.

“Bond investors forced to invest in dollar government bonds either through indexation, convention, regulatory guidelines or simply falling asleep at the helm are being short changed by one to two percent annually compared to historical norms and in many cases receive negative real yields,” he wrote.

“While that still leaves open the question of price behavior following QEII, there should be little doubt that simply holding Treasurys at these yield levels for an extended period of time represents an abdication of responsibility,” said Gross.

QEII is an abbreviation for the Fed’s second round of quantitative easing, a policy of buying assets in order to inject money in markets and thus keep interest rates low.

“Bond – and stock – investors have been sailing on the ‘Good Ship Lollipop’ for over 30 years following the Volcker revolution and the return of high real interest rates to investment markets,” he said.

“Now, however, with governments attempting to impose financial repression, bond investors should revolt,” he added.

“PIMCO advocates not so much a mutiny but a renewed vigilance on this new ship, stressing bond market safe spread alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies,” Gross said.

Read the original article HERE.

Friday, April 29, 2011
By Terence P. Jeffrey
CNSNews.com

Mainland China has decreased its holdings of U.S. Treasury securities since last October, according to a report updated today by the U.S. Treasury Department.

Since September 2008, when they eclipsed Japan, entities in mainland China have been the largest foreign owners of U.S. government debt. But, as indicated by the Treasury Department chart linked here, Chinese ownership of U.S. Treasury securities peaked in October 2010 and has declined in each of the four most recent months reported by the Treasury Department.

At the end of October 2010, China owned 1.1753 trillion in U.S. Treasury securities. That dropped to $1.1641 trillion by the end of November, $1.1601 trillion by the end of December, $1.1547 trillion by the end of January, and $1.1541 trillion by the end of February 2011.

February is the latest month for which the Treasury has estimated foreign holdings of U.S. debt.

Back in February 2001, according to historical data reported by the Treasury, the mainland Chinese owned only $63.7 billion in U.S. debt. In the ensuing decade, the Chinese massively increased their holdings of U.S. Treasury securities, and especially in the past five years. In February 2006, China owned $318.4 billion in U.S. debt and Japan owned $656.4 billion.

In September 2008, the Chinese moved ahead of the Japanese in their U.S. debt holdings. At the end of that month, the mainland Chinese owned $618.2 billion in U.S. government debt and the Japanese owned $617.5 billion.

In the two years between September 2008 and September 2010, China increased its U.S. government debt holdings by $533.7 billion—from $618.2 billion to 1.1519 trillion. By the end of October 2010, China’s holdings of U.S. government debt had increased to their peak of 1.1753 trillion.

After that, mainland Chinese holding of U.S. government debt declined for four straight months.

Entities in Hong Kong have also been decreasing their ownership of U.S. government debt. Hong Kong ownership of U.S. Treasury securities peaked at $152.4 billion in February 2010. By the end of February 2011, that had dropped to $124.6 billion.

In fiscal 2010—which ended on Sept. 30, 2010—the U.S. Treasury needed to redeem $7.206965 trillion in maturing U.S. Treasury securities. In order to cover the principle on those securities and borrow the money needed to cover government expenses that exceeded government revenues, the Treasury needed to turn around and sell $8.649171 trillion in U.S. Treasury securities during that fiscal year.

So far in fiscal 2011—which began on Oct. 1, 2010—the U.S. Treasury has needed to redeem $4.176308 trillion in maturing Treasury securities and sell $4.769522 in new Treasury securities.

At the end of February, according to the Treasury, the total U.S. debt was $14.194764 trillion of which $9.565541 trillion was publicly traded Treasury securities. Of those $9.565541 trillion in public Treasury securities, foreigners owned $4.4743 trillion—or almost 47 percent.

The $1.1541 trillion in U.S. debt owned by the mainland Chinese as of the end of February equaled about 12 percent of the publicly held portion of the U.S. debt and almost 26 percent of the publicly held portion of the U.S. debt that was owned by foreign interests.

CNSNews.com is not funded by the government like NPR. CNSNews.com is not funded by the government like PBS.

Read the entire article HERE.

By Burton Frierson
NEW YORK | Sun Mar 13, 2011 4:38pm EDT
Reuters

(Reuters) – Shaken by the prospect of nuclear meltdown after a devastating earthquake and tsunami, Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.

Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors, market analysts said.

Stocks also are likely to come under pressure.

Japanese insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries so they can respond to the worst disaster since World War Two.

The crisis could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive disasters in history and nearly as much as the entire worldwide catastrophe loss for the global insurance industry.

Traders braced for just such an outcome on Friday, when the yen surged and Treasuries fell. The Bank of Japan probably will add money to the system to limit the liquidation of assets. But the big question remains of how much follow-through selling is yet to come.

Dan Fuss, the vice chairman of $150 billion Loomis Sayles, told Reuters on Sunday that his best guess is that Treasuries will continue to see losses.

Because Japan is the second-biggest holder of U.S. government debt and they have nearly $900 billion in dollar reserves, Fuss said Japan will likely use reserves for rebuilding.

“A big buyer of bonds is taken out of the market,” Fuss said, adding that Japan “will be less able to add to their reserves and less able to buy Treasuries.”

TAKING STOCK

Japan’s crisis may also provide a new reason to press on with the long-awaited retreat in stocks.

A lot will depend on the price of oil, which fell on Friday on concern that the Japanese earthquake would hit global economic sentiment. It came off recent highs reached on the revolts in North Africa and the Middle East, but upheaval in the region over the weekend continued — notably with a protest in Saudi Arabia.

Investors will also engage in the grim exercise of determining which companies will benefit from helping the world’s third largest economy rebuild.

“You could expect to see industrial infrastructure companies do better. As for the overall markets, I don’t see it having any long-term negative impact,” said Paul Hickey, co-founder of Bespoke Investment Group.

“I remember after the last big tsunami in Indonesia there was a widespread view that it would be devastating, but there were no big impacts. Granted this is a much more developed region and certain insurance companies will have bigger exposure than others but outside of that region business will continue to go on.”

Equities have generally remained relatively resilient amid a wide range of risk factors in recent weeks. World stocks .MIWD00000PUS have come off highs, but are still clinging to year-to-date gains, thanks primarily to the developed markets.

Prime Minister Naoto Kan described the crisis as Japan’s worst since 1945, as officials confirmed that three nuclear reactors were at risk of overheating, raising fears of an uncontrolled radiation leak.

The disaster may also put some pressure on the Bank of Japan, which said it was cutting short its upcoming two-day meeting to just Monday.

It can do little with rates per se, even if it wanted to, because the current target is just 0.05 percent. It has, however, promised to ensure market stability.

Read the entire article HERE.