Thread

US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments

152 points · 132 comments · iamnothere

1over137 · 1789747701 · focus · HN ↗
US everything has become unappetizing for everyone outside the US.
1. carefree-bob · 1789750030 · focus · HN ↗
  This is nonsense. The rest of the world holds 9.7 Trillion in Treasuries and this amount increased by $500 billion over the last year.
  So the opposite of this article is true. You can get all the data from the Z.1 release.
  Please don't take these types of flame bait articles seriously or try to spin up an entire world view based on them as you will end up not only directionally wrong, but believe in the exact opposite of reality.
  FYI, that $500B increase in treasury holdings is not the whole picture, there are also the agencies (housing mortage backed securities guaranteed by the govt) and foreign holdings of those also increased by $70 billion over the last year, and are about 1.5 Trillion.
  1. bflesch · 1789750224 · focus · HN ↗
    Institutional investors are very slow to adapt, so I wouldn't take their continued investment as a positive signal. The sentiment shift is real, and a lot of goodwill has been spent.
    It's basically divide and conquer on a national scale tearing down the democratic world police and the democratic systems it supported.
    carefree-bob · 1789751178 · focus · HN ↗
    The point is that the entire article is wrong, factually.
    In terms of institutional investors and sentiment, I think you are fundamentally not understanding why the rest of the world holds US debt, it is to support running trade surpluses. That is a core economic need of much of the world, and as long as there is that need, you will see foreign government accumulation of dollar denominated assets.
    For some reason people either refuse to understand simple balance of payment accounting constraints or they are deeply offended by them, and want to live in a world in which moral outrage determines things like global capital flows.
    But we do not live in that world. The reason why the rest of the world accumulated a trillion of dollar denominated assets last year, split roughly 50/50 between private and public, is solely because China needed to run a trillion dollar trade surplus. And next year it will also need to run an even bigger surplus. That forces everything else.
    lokar · 1789752168 · focus · HN ↗
    Yep. The flow has to balance out somehow. If the US buys more then it sells (all in, including services, which trump ignores for no clear reason) the sellers have to end up owning USD denominated assets.
    quickthrowman · 1789752287 · focus · HN ↗
    There are an excess of dollars floating around internationally and only so many ‘risk free’ dollar-denominated assets. US Treasuries will continue to be purchased. There are plenty of buyers who are obligated to buy risk-free assets and US Treasuries are the vehicle of choice.
  2. slg · 1789750559 · focus · HN ↗
    Sure, the engines may have died, but not only is the plane still airborne, it's even accelerating!
    verdverm · 1789751215 · focus · HN ↗
    gravity... is working against me... dream of ways... to throw it all away...
    <a href="https://www.youtube.com/watch?v=7VBex8zbDRs" rel="nofollow">https://www.youtube.com/watch?v=7VBex8zbDRs
    samudrijan · 1789751284 · focus · HN ↗
    View looks great from up here. Any peanuts?
    jackb4040 · 1789753633 · focus · HN ↗
    I could kiss you!
    tialaramex · 1789760287 · focus · HN ↗
    To be fair, while accelerating isn't necessarily what you want per se, you must maintain airspeed in an aeroplane if it loses engines. The instinct is to preserve altitude since hitting the ground is the key thing you don't want to happen - but if you preserve that altitude at the cost of losing airspeed (and now that you don't have engines you can't keep both) you will experience aerodynamic stall and fall out of the sky anyway.
    cmurf · 1789763664 · focus · HN ↗
    There are two best glide airspeeds for this scenario: lowest descent rate (typically not published) and greatest range. Simplistically, the published airspeed number will get you pretty close to the best lift/drag ratio for make/model. This should be a memory number.
    As for the landing, perhaps the best advise I read was from Bob Hoover (aerobatics in a twin Aero Commander): If you’re faced with a forced landing, fly the thing as far into the crash as possible.
    The key word: fly. You are not flying if you are stalling. And you only have positive control if you're flying. Or also: don't stop too abruptly.
  3. bryanlarsen · 1789752224 · focus · HN ↗
    You are using the wrong metric. The supply of t-bills is increasing rapidly because of the massive deficit. That is sufficient to explain the increased number of holdings.
    The correct metric is price. If there is decreased demand, it will show up in the yield. And it does.
    gpt5 · 1789754783 · focus · HN ↗
    Foreign holding of US treasuries has also increased last year. That is not explained by increased deficit, but by net increase in demand.
    danmaz74 · 1789755452 · focus · HN ↗
    T-bills are offering higher yields, that helps with demand.
    hvb2 · 1789755724 · focus · HN ↗
    > That is not explained by increased deficit, but by net increase in demand.
    A yield going up means you pay more for the same thing. So if the US wants to issue more debt, they can. The fact that more debt was bought but the yield went to means the supply grew faster than the demand. So an absolute increase in demand, but a net decrease, thus a higher price as shown by the yield
    gpt5 · 1789756218 · focus · HN ↗
    That is not true. Yield is going up globally, so you need to adjust for the difference in yield.
    For example, the US and Euro (average) yield have gone up by almost the same amount in that period, and other currencies like Japan and Australia have experienced an even larger increase.
    I’m not sure why the level of discussion in this post is so poor.
    hunterpayne · 1789772909 · focus · HN ↗
    "I’m not sure why the level of discussion in this post is so poor."
    Its because bond yields and fixed income in general isn't well understood by the public. Even in finance, its often not correctly understood except by those working in fixed income or the IT teams that support them. Funny thing is, often the devs in those departments understand global finance better than the CEOs running those firms because of how fixed incomes is seen by other departments. Basically, its the lowest department because it doesn't get great yield while ironically requiring the best math and economics knowledge to do.
    hunterpayne · 1789772447 · focus · HN ↗
    You are misunderstanding some basic things about bonds. Bonds are weird. Higher yield means the bond gives out more coupons (yield, money, etc). But the bond itself costs exactly the same no matter the yield when first bought.
    The actual thing being bid on in the bond market is the yield itself. Higher yield is sort of like a higher price in that it means you have to offer more to the lenders. However, what they are actually betting on isn't the ability of the US government to repay. What they are actually betting on is the future inflation rate. So a higher yield doesn't mean what it means for corp debt (ie we don't think you will be able to pay this back). A higher yield for t-bills actually means lenders think inflation will increase in the future. Hence the FED raising rates to fight inflation.
    PS But seriously, the bond market is very weird and most people mess up what changes in yield mean for different kinds of bonds because they don't mean the same things (unlike securities ie stocks).
    PPS This is all because of the reduction in the amount of oil available worldwide, which triggers increases in global rates, which triggers increases in US rates.
  4. boricj · 1789753020 · focus · HN ↗
    It's not just about treasure bonds. The mood is shifting in Europe that, maybe, putting all the eggs in the USA basket is perhaps not that great of an idea.
    It's the vindication of Gaullism half a century after De Gaulle's death, the concept of strategic autonomy is getting traction in the rest of Europe. It's not that we can't be friends, but that we shouldn't let our future be gambled in the hands of Wisconsin voters every two years.
    rdm_blackhole · 1789754913 · focus · HN ↗
    > the concept of strategic autonomy is getting traction in the rest of Europe.
    I think you may have missed the part where Sweden just joined NATO recently. As long as the EU countries are in NATO which is de facto under American leadership, then there will be no strategic autonomy.
    Secondly, even if the mood is sour between the US and the EU currently, Germany, Poland and other small eastern states very much still like to have the US as backers if only just for the fact that there is no EU army.
    If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
    danmaz74 · 1789755776 · focus · HN ↗
    A US-led NATO may very well not survive two more years of Trump presidency.
    thijson · 1789756001 · focus · HN ↗
    <a href="https://www.youtube.com/watch?v=EOdabtEUoyY" rel="nofollow">https://www.youtube.com/watch?v=EOdabtEUoyY
    hvb2 · 1789756010 · focus · HN ↗
    > If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.
    The whole point is that, in general, global cooperation has worked well in the last 80 years. Europe doesn't want that to change but the US didn't vote for this guy once, but twice. Fool me once, shame on me, fool me twice, shame on you.
    So Europe won't leave NATO, but it is pivoting to being more self sufficient. It's another area where the US is quickly spending the political capital it accumulated for decades.
    bryanlarsen · 1789758336 · focus · HN ↗
    > but that hasn't happened and maybe never will.
    Countries aren't leaving NATO yet, but they are setting up and strengthening alternatives which will make such an option easier. For an example, Canada just joined SAFE.

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