Treasury Bills, Notes, and Bonds Discussion

[COcheesehead]

Japan remains the largest NON-U.S. holder of U.S. government debt

I will reiterate, one of the biggest buyers of US bonds, China, sold 40 billion in US bonds in the last 18 months. You flipped my statement of one of…to the biggest. Reread 2446.

 

[Fermion]

I will reiterate, one of the biggest buyers of US bonds, China, sold 40 billion in US bonds in the last 18 months. You flipped my statement of one of…to the biggest. Reread 2446.

Might be talking past each other here, sorry.

I always thought that entities like the social security trust were by far the biggest buyers of US debt...certainly more than a paltry 40 billion over 18 months.

That is like one fighter jet now

 

[COcheesehead]

Might be talking past each other here, sorry.

I always thought that entities like the social security trust were by far the biggest buyers of US debt...certainly more than a paltry 40 billion over 18 months.

I think we can both agree that we live in interesting times.

 

[MichaelB]

I will reiterate, one of the biggest buyers of US bonds, China, sold 40 billion in US bonds in the last 18 months. You flipped my statement of one of…to the biggest. Reread 2446.

Brad Setser, an expert on capital flows and trade economics and probably one of the persons with the best grasp of the detail of China transactions and holdings, makes the case that China holdings of Treasuries and U.S. dollar assets are flat. The problem is China does not report all of its holdings, makes some purchases through third party brokers and shifts some of its holdings into China state owned banks. See his analysis here

The greater point, still valid, is foreign owners are not increasing their purchases. The increase in our deficits will need to be financed domestically. So far, that’s not a problem. Eventually it will be.

I think we can both agree that we live in interesting times.

Understatement of the year (so far)

 

[11522914]

Brad Setser, an expert on capital flows and trade economics and probably one of the persons with the best grasp of the detail of China transactions and holdings, makes the case that China holdings of Treasuries and U.S. dollar assets are flat. The problem is China does not report all of its holdings, makes some purchases through third party brokers and shifts some of its holdings into China state owned banks. See his analysis here

The greater point, still valid, is foreign owners are not increasing their purchases. The increase in our deficits will need to be financed domestically. So far, that’s not a problem. Eventually it will be.

Understatement of the year (so far)

Article that says we have about 20 years before default if it stays on current path.

https://markets.businessinsider.com...stainable-default-treasury-bond-crash-2023-10

US debt will become unsustainable in roughly 20 years if it doesn't change course, a Penn Wharton Budget Model determined.

After that, no amount of tax hikes or spending cuts could prevent default "whether explicitly or implicitly."

An implicit default would include debt monetization that produces significant inflation.

For now, PWBM's approach found that US debt cannot surpass 200% of GDP if the worst is to be avoided. Right now, it's at about 98%. But a more plausible red line is closer to 175%, and even that assumes financial markets believe the government will implement fiscal policy corrections.

This is as bond yields will have to continuously rise in order to attract buyers of government debt

 

[MichaelB]

Article that says we have about 20 years before default if it stays on current path.

https://markets.businessinsider.com...stainable-default-treasury-bond-crash-2023-10

US debt will become unsustainable in roughly 20 years if it doesn't change course, a Penn Wharton Budget Model determined.

After that, no amount of tax hikes or spending cuts could prevent default "whether explicitly or implicitly."

An implicit default would include debt monetization that produces significant inflation.

For now, PWBM's approach found that US debt cannot surpass 200% of GDP if the worst is to be avoided. Right now, it's at about 98%. But a more plausible red line is closer to 175%, and even that assumes financial markets believe the government will implement fiscal policy corrections.

This is as bond yields will have to continuously rise in order to attract buyers of government debt

Over the past 3 years more than $60T has been created in new household wealth, and total household wealth is now over $150T. Certainly, fiscal policy and deficit spending contributed strongly to this increase. There can be no doubt the wealth and ability to pay our public debt exists. If the US defaults it will be a choice made, in part, by beneficiaries of the fiscal spending that causes the deficit.

NY Fed Survey of Consumer Finances here
St. Louis Fed Households net worth here

 

[Fermion]

Heck, the US gov. owns 1.9 billion acres of land. If you figure about $5,000 per acre, that is 9.5 trillion dollars right there.

 

[calmloki]

Heck, the US gov. owns 1.9 billion acres of land. If you figure about $5,000 per acre, that is 9.5 trillion dollars right there.

Betcha there are some foreign nationals who would be ok with buying more US land.

https://thehill.com/policy/equilibrium-sustainability/3978939-saudi-alfalfa-sparks-tension-in-arizonas-sonoran-desert/

 

[pb4uski]

Yeah, but guys, don't look at any possible good guys, just totally focus on the debt!

 

[ShokWaveRider]

When buying a Treasury through Schwab, how long do you get to free up the money from MM. Or does the cash have to be available before placing an order?

Assuming all one's money is in a Schwab MM fund.

 

[Maximus]

Over the past 3 years more than $60T has been created in new household wealth, and total household wealth is now over $150T. Certainly, fiscal policy and deficit spending contributed strongly to this increase. There can be no doubt the wealth and ability to pay our public debt exists. If the US defaults it will be a choice made, in part, by beneficiaries of the fiscal spending that causes the deficit.

NY Fed Survey of Consumer Finances here
St. Louis Fed Households net worth here

When buying a Treasury through Schwab, how long do you get to free up the money from MM. Or does the cash have to be available before placing an order?

Assuming all one's money is in a Schwab MM fund.

You can sell 100k (or whatever amount you like)of SWVXX to cash and place treasury order the same day.

 

[Midpack]

When buying a Treasury through Schwab, how long do you get to free up the money from MM. Or does the cash have to be available before placing an order?

Assuming all one's money is in a Schwab MM fund.

May not apply but for Vanguard funds must be available in your sweep account at the time you place the trade. And Vanguard requires you have the face value amount unless you have other assets in the account that could be liquidated for settlement, e.g. if you buy $10K in Treasury bills, you must have $10K in the MM sweep account even though the purchase price would probably be about $9.5K for a 52 week T-bill…

 

[Healthy Lifestyle]

I am retired and looking closely at the fixed income side, so wondering if anyone is interested in the 10 year TIP offering at Vanguard?

10 Year US Treasury Inflation Index REOPEN 2.159 07/15/2033

 

[copyright1997reloaded]

I am retired and looking closely at the fixed income side, so wondering if anyone is interested in the 10 year TIP offering at Vanguard?

10 Year US Treasury Inflation Index REOPEN 2.159 07/15/2033

The 10-year TIPS real rate was 2.166% as of Friday. The year to date high real yield was about 2.52% (10/25/23). So the real return has been moving down along with nominal rates.

Also, be aware that the TIPS inflation component (TIPS principal balance) will actually be slightly REDUCED in December. See: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.treasurydirect.gov/instit/annceresult/tipscpi/2023/CPI_20231114.pdf and TipsWatch explainer: https://tipswatch.com/2023/11/14/october-inflation-brings-positive-news-flat-for-the-month-sliding-lower-for-the-year/ (In reality, essentially flat.)

I own the original issue, but likely will not be particpating in the (re) auction. I did buy some (more) on 10/08 when the real return was around 2.47%.

 

[Healthy Lifestyle]

The 10-year TIPS real rate was 2.166% as of Friday. The year to date high real yield was about 2.52% (10/25/23). So the real return has been moving down along with nominal rates.

Also, be aware that the TIPS inflation component (TIPS principal balance) will actually be slightly REDUCED in December. See: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.treasurydirect.gov/instit/annceresult/tipscpi/2023/CPI_20231114.pdf and TipsWatch explainer: https://tipswatch.com/2023/11/14/october-inflation-brings-positive-news-flat-for-the-month-sliding-lower-for-the-year/ (In reality, essentially flat.)

I own the original issue, but likely will not be particpating in the (re) auction. I did buy some (more) on 10/08 when the real return was around 2.47%.

Thanks for the response.

 

[Montecfo]

Deflation: WMT

Walmart is preparing for deflation.

This is happening quickly.

https://www.cnbc.com/2023/11/16/deflation-holiday-walmart-ceo.html

 

[COcheesehead]

Based on the action in the bond market over the last two weeks, it’s not really a surprise.

 

[copyright1997reloaded]

The 10-year TIPS real rate was 2.166% as of Friday. The year to date high real yield was about 2.52% (10/25/23). So the real return has been moving down along with nominal rates.

Also, be aware that the TIPS inflation component (TIPS principal balance) will actually be slightly REDUCED in December. See: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.treasurydirect.gov/instit/annceresult/tipscpi/2023/CPI_20231114.pdf and TipsWatch explainer: https://tipswatch.com/2023/11/14/october-inflation-brings-positive-news-flat-for-the-month-sliding-lower-for-the-year/ (In reality, essentially flat.)

I own the original issue, but likely will not be particpating in the (re) auction. I did buy some (more) on 10/08 when the real return was around 2.47%.

Update (11/21/23 @ 8:37AM): Current 10-year tips (maturity 2033-07-15) is trading at 2.137% real return. At Fidelity, auction participation cutoff is (I believe) 9:30AM.

 

[audreyh1]

Some discussion here on todays TIPS auction: https://tipswatch.com/

To long for me, but looks like it is still a good deal historically.

 

[MarieIG]

Some discussion here on todays TIPS auction: https://tipswatch.com/

To long for me, but looks like it is still a good deal historically.

If I were to try TIPS, five years would be my max.

 

[copyright1997reloaded]

If I were to try TIPS, five years would be my max.

Current real yield on the (a bit under) 5-year TIPS, CUSIP 91282CGW5, Maturity 4/15/2028 is aproximately 2.311%.
(ETA: 1.25% coupon on this, so selling at about 95.585 plus accrued inflation factor)

 

[audreyh1]

If I were to try TIPS, five years would be my max.

That’s what I did. Bought a 5 year TIPS last December, and another this past October. That will be it for me for a long while.

I pretty much bought these because the real yields were so much better compared to history, especially recent history. The recent issue even had a 2.375% coupon. TIPS are complex instruments to evaluate.

 

[MarieIG]

That’s what I did. Bought a 5 year TIPS last December, and another this past October. That will be it for me for a long while.

I pretty much bought these because the real yields were so much better compared to history, especially recent history. The recent issue even had a 2.375% coupon. TIPS are complex instruments to evaluate.

They certainly are for me

 

[tulak]

I'm happy to buy 10 years TIPS and hold to maturity. But I'm using them for guaranteed income as a hedge against SORR.

If I was investing for general FI, I'd probably stick with treasuries and would keep the durations short.

 

[Chuckanut]

The 10 year TIPS came in at 2.18% for the fixed rate. It sold at a discount, about 94.03.

More info —->. https://www.early-retirement.org/forums/f28/tips-119676.html#post3016060