Who Is Buying the US Treasuries?

“With all the record Treasury debt being ‘snatched up,’ as you mentioned last week,” a reader writes referring to record U.S. government debt sales in 2009, “you need to have someone follow up on and research WHO is buying all that debt -- and publish that list. That would be interesting to see.”

The 5: The Treasury keeps some of this data on a public site, hidden under enough nerdy language to discourage layman comprehension.

But that’s just one layer of this stinking onion. Your editor was paging through the latest issue of The Richebacher Letter yesterday and found this -- which takes your question to the next level: Not only who is buying it, but how are they paying for it?

“Foreign investors, U.S. households and the Federal Reserve are the most aggressive purchasers of Treasury debt in recent quarters,” writes editor Rob Parenteau. “Most of the purchases of U.S. Treasuries came from foreign official investors, namely foreign central banks.

“During the year ending in Q3 2009, the U.S. current account deficit shrank to $465 billion. That represents $465 billion of foreign net saving that could be used to purchase U.S. assets, yet we find foreign central banks purchased $546 billion in Treasuries, which means they absorbed nearly a third of the net issuance…

“We believe this increased foreign exposure to Treasuries in part reflects a recycling of proceeds from sales of agency and government-sponsored enterprises (GSEs) to the Fed. As the Fed purchased $809 billion of agency and GSE debt (on a trailing four-quarter average) through 2009 Q3, $282 billion of that total was acquired from foreign investors, of which $197 billion was bought off the balance sheet of foreign central banks… In other words, over a third of foreign central bank Treasury purchases are likely to have been financed with dollars that the Fed provided.

“We return to your original question: Who is buying Treasuries? The answer is the Fed, and households and foreign central banks that received money from selling agency and GSE debt to the Fed. Remove the Fed from the picture, as is currently planned by the end of Q1 2010, and placing all the new Treasury issuance may not be such a cakewalk in 2010 as it appeared to be in 2009.”

From AGORA Financial Executive Series