Weekend Economists Examine (E)sc(h)atology January 24-26, 2014

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73. Americans Will Have To Step Up In The Treasury Bond Market And There's Only One Way To Get Them To

http://www.businessinsider.com/why-yields-must-rise-across-the-curve-2014-1

Americans Will Have To Step Up In The Treasury Bond Market And There's Only One Way To Get Them To Buy

In a couple of earlier discussions (here and here) we talked about a significant buildup of treasury short positions. Since then there are indications that a few of the larger direct players have been covering their short bond exposure, pushing treasury yields lower. If the emerging markets contagion (discussed here) persists, more short covering is expected.

But what about the longer-term outlook for treasuries? As the Fed cuts its buying program, we are left with two major categories of purchasers - foreign and private domestic. Foreign buying is directly linked to growth in current account surplus of key US trading partners, particularly in Asia. And while nations like China and Japan hold enormous amounts of US government paper, it's unclear if they will return to the volumes of purchases from 5 years ago. For example the explosive growth in China's current account surplus through 2009 is no longer there, which should translate to a more modest rate of treasury buying.

http://4.bp.blogspot.com/-8pMR7PvMYA8/UuLuvaCPNQI/AAAAAAAAdnE/0fCkZE0Kbdc/s1600/China+Current+Account.png

Read more: http://soberlook.com/2014/01/feds-taper-and-weaker-foreign.html#ixzz2rVv3e4CA