Thursday, March 24, 2016

Treasury Buying Mystery - Does Treasury Data Imply the Treasury Market is a Fraud!?!

This is a story about the largest market in the world, the $19+ trillion US Treasury market representing about 10% of all global debt.  Utilizing government data, I'll explain what looks like a fraud and if this greatest of markets is corrupted, then all markets are undermined by this fraudulent mispricing.  A story of record supply, collapsing demand, resulting in near record low yields (those familiar with precious metals should recognize the same strange non-market based dynamics impacting metals)!?!?
  • One by one, nearly all Treasury buyers have ceased buying (net) US Treasury's.
  • As each group of buyers ceases their purchases leaving an ever smaller pool of potential buyers, interest rates have fallen further in contradiction to market fundamentals?!?
  • Since QE3 was fully "tapered" (no further net new Fed purchases), all foreign buying has simultaneously ceased.
  • The only remaining buyers are the US intra-governmental purchases but primarily the US public (US banks, US pensions, US insurers, US private citizens).
  • Since the completion of the Fed's taper in November 2014, the US public has undertaken the greatest Treasury buying spree in history pushing Treasury yields to near record low yields.
    • Really?  Why?  Why would domestic insurers or pensions suddenly buy an asset yielding 0.8% for a 2yr to 1.8% for a 10yr Treasury when their total distributions are around 7.5% to 8% annually?  Buying significant quantities of low yielding US debt ensures a shortfall for these plans which are already generally underfunded. 
    • Why the sudden surge in domestic Treasury demand in 2015 coinciding and overriding the collapse of Federal Reserve and foreign purchasing?  This is a sudden reversal to decades long Treasury buying patterns.
    • If these domestic sources did buy US debt, when or what did they sell to raise the cash with which to purchase the Treasury's now closing in on a trillion dollars?
  • If not the above domestic sources, not the Fed, and not foreigners...who's left as the buyer of last resort?  In short, a buyer that doesn't care above profit motive, a buyer that need not sell anything to raise cash, a buyer that seems to have motives in contradiction to everyone else in the market?
The Details:
The first chart breaks all Treasury buying purchases down among 4 basic groups (The Fed, Foreigners, Intra-governmental (aka, SS surplus), & US Public).  Foreigners are broken further into 4 subgroups, BRICS, BLICS (Belgium, Luxembourg, Ireland, Cayman Islands, Switzerland), Japan, and the RoW (Rest of World).  The periods are December '00 to December '08 (Dec '08 when QE began), December '08 to July '11 (July '11 the month China Treasury holdings peaked and China plus the BRICS holdings have declined since despite ongoing record trade surplus' with the US), July '11 to Dec '14 (Fed's QE plus BLICS maintain the buying).  Finally, the post QE period from Dec '14 to present (January '16).

The chart above makes it clear nearly all net new Treasury buying is coming from domestic sources, US public primarily with an assist from an equally strange source, intergovernmental buying (Intergov is strange due to soaring SS recipients vs. no net new full time jobs since July '07...where are the billions in excess surplus dollars coming from?).

The chart below shows the monthly 10yr Treasury yields.  Interesting to note, rates rise during QE and fall absent QE...exactly opposite to the Fed's stated goals for QE?!?
Finally, the chart below shows which of the sources has been buying (on an average monthly basis) over the different timeframes back to 2000 plus impact on the 10yr Treasury yields (in blue boxes).  The current pace of domestic and intergovernmental purchases are of a scale never seen before, particularly strange at the present extremely low yields. 

Perhaps someone in "the know" can help explain how and/or why domestic sources would have suddenly shifted to purchase all the new Treasury debt at even lower rates than the Fed or Foreigners were willing to pay?  Otherwise, the fraud is full frontal.  And if this market is corrupted, it's almost sure all downstream markets are likewise fully phony and fraudulent.

BRICS vs. BLICS vs. Fed & All Foreign Purchases

***All data is via the US Treasury and the Federal Reserve.

Why would the Fed or ESF or whoever go to such lengths to maintain a false market?  For those curious why such an elaborate ruse is likely taking's shockingly simple.  As the primary driver for growth, population growth, slowed and transitioned from wealthy to poor nations, interest rates were slashed to incent greater debt to maintain artificially high growth rates.  Unfortunately, there is nothing left but synthetic "growth" as organic growth has entirely ceased.  This is a rearguard action to maintain the unmaintainable.
Details Here and Here and Here