Wall Street banks are cutting their holdings of Treasuries at the fastest pace since 2004 as the world’s biggest bond firms bet that the economy will strengthen and demand for higher-yielding assets will increase.
The 18 primary dealers that trade with the Federal Reserve reported that holdings of U.S. government debt tumbled to a net $2.34 billion on Dec. 29 from $81.3 billion on Nov. 24, the most since June 2009, according to the most recent central bank data. While the stake is the lowest since February, corporate bond and mortgage securities have risen from the lows of the year.
Dealers had stocked up on U.S. debt anticipating demand from customers who wanted to sell the securities to the central bank as part of Fed Chairman Ben S. Bernanke’s plan to buy $600 billion of Treasuries. Government bonds lost their allure as stocks rose, corporate financing conditions eased, expectations for inflation increased and the dollar strengthened.
“Slowly but surely the economy’s getting on stronger footing,” said John Fath, who helps manage $2.5 billion as a principal at investment firm BTG Pactual in New York and was the former head government-bond trader at UBS Securities LLC, a primary dealer. “There are people moving or thinking of moving out of risk-free assets. This is what Bernanke wanted.”
Berkshire Hathaway Inc., the Omaha, Nebraska-based holding company controlled by billionaire Warren Buffett, and General Electric Co.’s finance unit led companies selling a record $48.5 billion of bonds in the U.S. last week as relative yields on investment-grade debt shrank to the narrowest since May. (more)
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