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Who’s Buying US Treasuries?

There have been no failed auctions, no sovereign defaults, no downgrades of debt and no significant increase in rates: not so much as a hiccup in the treasury market. Knowing what we discussed this past June, we have to ask how it all went so smoothly. After all, it was pretty obvious that there wasnt enough buying power to satisfy the auctions under normal circumstances. While the Q4 data is not yet available, the Q1, Q2 and Q3 data suggests that the state and local governments and US savings bonds groups will be net sellers of US Treasury securities in 2009, while pension funds, insurance companies and depository institutions only increased their purchases by a negligible amount. So who was the third large buyer? Drum roll please... it was Other Investors. After purchasing $90 billion in 2008, this group has purchased $510.1 billion of freshly minted treasury securities so far in the first three quarters of fiscal 2009. If you annualise this rate of purchase, they are on pace to buy $680 billion of US treasuries this year or more than seven times what they purchased in 2008. As we have seen so illustriously over the past year, all ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US governments ability to raise money in the debt market. The fact that the ...