One of the persistent questions in 2017, has been how – with equities at all time highs – are Treasurys and other corporate bonds so strongly bid, and why is the 10Y still trading at a level that is more suggestive of a deflationary slump than an economic rebound.
The answer it turns out, is to be found offshore, and was especially visible the day before the Fed’s unexpectedly dovish Wednesday statement, when yields and spreads blew out.
As Bank of America’s credit strategist Hans Mikkelsen wrote in a Thursday note, when he observed the sharp move higher in yields and subsequent collapse at 2pm on Wednesday, “note the big rebound in net dealer-to-affiliate volumes following the recent notable increase in interest rates (Figure 3) – especially in the back end (Figure 4).” What the charts below show is the relative interest by offshore traders to buy (negative number) or sell (positive) US debt. What is most notable is that on the day yields and spreads spiked, so do foreign buying. In fact, in the total debt bucket, foreigners bought the most debt in the past year.
This post was published at Zero Hedge on Jul 28, 2017.
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