Free Republic

It has been over three years since the disastrous Covid economic shutdowns of 2020. And here we are again! US investment-grade bond yields have just had the biggest two-day drop since April 2020. And the US Treasury 10Y-2Y curve remains steeply inverted. Help me Jerome!

Shortly after the PBoC’s move to devalue the yuan, we noted with some alarm that it looked as though China may have drawn down its reserves by more than $100 billion in the space of just two weeks. That, we went on the point out, would represent a stunning increase over the previous pace of the country’s reserve draw down, which we began documenting months ahead of the devaluation (see here, for instance). We went on to estimate, based on the projected size of the RMB carry trade unwind, how large the FX reserve liquidation might need to be to...

David Scutt, Business Insider Australia August 26, 2015 The outlook for Chinese economic growth is not as bad as some commentators are suggesting, and while it is uncertain, it is certainly not collapsing. The view presented by Goldman Sachs' portfolio strategy research team, in a note released earlier this week, suggests that Chinese economic growth will recover in the final quarter of this year on the back of flexibility with fiscal, monetary, and reform policy. Here's Goldman on the recent slowdown in China's growth momentum: China growth has slowed meaningfully in recent months, as evidenced by the disappointing official data,...

On Friday, alongside China's announcement that it had bought over 600 tons of gold in "one month", the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion. We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention. Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China's...

David Zervos, head of Global Fixed Income from Jefferies Securities, compares how goverment intervention in the Treasury market is somewhat similar to the government's endorsement and Wall Street's packaging of the junk Maimi ocndo market as high quality loans. When is the Fed's actions of buying long U.S. Treasuries going to catch up with what is really happening in the financial markets, government spending and the real economy.

Berkshire Hathaway Chairman and CEO Warren Buffett told the FOX Business Network that S&P's downgrade of the United States' triple-A credit rating "doesn't make sense." "I don't get it," Buffett told FBN late Friday night. In fact, Buffett reaffirmed his belief in the quality of the United States' credit telling FBN, "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that." Buffett told me tonight that Berkshire Hathaway's T-bill exposure is significant. "We just filed our 10Q and we have $47 billion in cash and cash equivalents. Well over...

Just in time for the end of QE2, when the US needs every possible foreign buyer of US debt to step up to the plate, we get confirmation that yet another major foreign central bank has decided to not only not add to its US debt holdings, but to actively sell US Treasurys. The WSJ reports that "Russia will likely continue lowering its U.S. debt holdings as Washington struggles to contain a budget deficit and bolster a tepid economic recovery, a top aide to President Dmitry Medvedev said Saturday. "The share of our portfolio in U.S. instruments has gone down...

My weekend column is about “the debt ceiling” and how, even as the Treasury issues more and more debt, there are fewer and fewer people willing to buy it. I forgot to mention the really startling number. Pimco (which has now dumped US Treasuries) estimated last month that, under QE2, 70 per cent of the US Government’s debt is being bought by the Federal Reserve. In other words, under the 2011 budget, every hour of every day, the federal government spends $188 million it doesn’t have, $130 million of which is “borrowed” from itself.<.p>

There's been some discussion over the last few days of what is going to happen if China starts reducing its position in US Treasuries. Seeking Alpha has a good summation of the problem: In response, during a recent summit, the leaders of Brazil, Russia, India, China and South Africa (the BRICS) announced that they want to trade between themselves in their own currencies. This comes amid a growing chorus in China pushing for a limit of dollar reserves to $1.3 trillion. At present, China, whose economy the IMF says will outpace that of the US by 2016, has $3.04 trillion...

I’ve been getting questions about what happens when the Fed wraps up QE2 — related especially to Bill Gross’s public view that interest rates will shoot up. This is related to the question of the extent to which QE2 has kept interest rates low. So a quick exposition of my theoretical position, which also happens to be more or less standard economics.So: I basically think of asset prices in a Tobin-type stock equilibrium framework (pdf). People make portfolio choices, allocating their wealth among bonds, stocks, etc.. Asset prices – including the famous “q” – rise and fall to match...

The wisest and most successful bond investor of all time, Bill Gross, has dumped his bond fund’s $150 billion investment in U.S. bonds. One should not ignore the importance of this event. The largest bond fund in America no longer believes that Treasury bonds are a good investment. Moreover, Gross is not alone. Blackrock, the world’s largest money manager, is now underweighting Treasuries overall and reducing the duration of the bonds it still holds. That means they are dumping their long-term bonds, which are the most sensitive to interest-rate changes, in favor of Treasury instruments that mature in a year...

Pimco's Bill Gross has been dumping US government debt in favor of other alternatives including emerging-market opportunities. Looking ahead, I think it's more likely to be a bullish setup for treasuries than not. First, please consider the news. Bloomberg reports Pimco’s Gross Eliminates Government Debt From Total Return Fund Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits. Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to...

Bill Gross manages the world's largest bond fund.  If you own bonds in your retirement, either through his PIMCO fund or some other branded variant, there is a good chance he manages some of your money.  Yesterday he announced he has abandoned the US bond market in his largest fund.  As of January 2009, his $237 billion Total Return Fund held zero government related debt. People expecting a stampede from the US bond market are going to be disappointed.  Bond holders are not a herd of animals who follow each other blindly.  Bond holders are a mass of individuals with...

Any psychoanalyst looking at the behavior of investors today would see clear strains of schizophrenia in a comparison between the markets for gold and US Treasuries. Currently, the 10-year Treasury yield is setting new lows on a daily basis. In the financial models all economists were taught at school, this would be an indication of an economy with low inflation expectations and a strong currency. But the dollar has fallen over 12% since June, and the price of gold continues to hit all-time highs. These results are completely antithetical. Bonds are flashing a warning sign of deflation, while gold and...

The selling in Treasurys picked up speed Wednesday afternoon, despite a well-bid five-year note sale and another round of Treasury buying from the Fed, on mortgage related selling and as investors girded themselves for more supply. Selling kicked the 10-year note yield to a fresh high of 3.62% and forced the Treasurys benchmark yield curve, the gap between the two- and 10-year yields, to steepen out to 268 basis points from 263 basis points Tuesday as longer-term Treasurys continued to come under heavy pressure. The afternoon's five-year note sale was a success, but nervous investors were eyeing the government's final...

The US-China economic nexus is the most strategically important in the world today. The nexus is in danger of fraying as US Government dependence on Chinese money grows even as China now has more options for how it spends or invests its huge surplus than it did even 2 or 3 years ago. The Chinese have growing doubts about the wisdom of continuing to buy US Treasuries at their current enormous rate.