Five Years Of “Progress”

Five Years Of “Progress”

Ham-bone's picture

Since March ’09 – S&P 500 is up 250%+…how was this achieved? Fed, “foreign”, and domestic balance sheets.

Take a look @ the US Treasury Outstanding Public debt (OPD) which grew from $6.5 T (’09) —> $12.5 T (present)

 Who purchased this?


3.2 T —> 5.8 T (90% in Notes/Bonds)


$300 B (primarily bills) —> $4.2 T ($2.2 T notes/bonds, $0 bills)

 Domestic sources

’09 $2,542 ($500 B bills, $2 T in Notes/bonds) —> ’13 $4,142 ($2.14 T in Bills, $2 T Notes/Bonds)

Of the entire $10 T of US OPD notes/bonds, 80% are now owned by Fed & “foreigners”. Despite the doubling of OPD, domestic sources (everything ex-Fed, ie. states, pensions, insurers, mutual funds, etc.) on net purchased zero OPD notes/bonds. This meant these Trillions in new assets were freed up for equities, CRE, RE, etc.


Now the Fed, who purchased over 100%+ of all OPD notes / bonds in ’13 (70% of all new issuance plus mopping up significant rollover) is tapering new purchases (to zero? no word yet on a wind down of balance sheet). Domestic sources show no signs of buying low yielding notes/bonds new issuance or rollover OPD at anything near these yields.

This means all new issuance and all loose rollover OPD must be purchased by “foreigners” and presumably @ continuing historically low yields…b/c if yields begin rising, “foreigners” and Fed will take large losses on their holdings. I guess it’s up to these “foreigners” to continue buying ever more debt at ever lower yields to avoid a potential rate shock? But is this likely as US runs smaller trade and budget deficits (less $’s to recycle)???  If “foreigners” continue to purchase despite the smaller trade/budget deficits, can we simply revise the category’ as “Fed QE/Foreigner  shadow QE”, “perhaps, maybe real Foreigners”, and Domestic.

Absent the Fed or “foreigners” who bought all new notes / bonds OPD since ’09, domestic sources @ record levels of leverage would need to sell risk assets to purchase Treasury’s likely @ rising yields…anybody believe this will happen?

Definition of “foreigners”…TIC report admits “foreign” ownership only denotes country from which Treasury was purchased, not nationaliy of who purchased it or where “money” came from…or who actually owns it.  I’m not even sure if it’s “illegal” (black letter law) for the Fed to purchase additional Treasury’s via Foreign locations (ie, Belgium, Luxembourg, Ireland, etc.)…anybody know???

 1/  Estimated foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported monthly under the Treasury International Capital (TIC) reporting system. Holdings of Treasury bonds and notes are reported on TIC Form SLT, “Aggregate Holdings of Long-Term Securities by U.S. and Foreign Residents,” including preliminary SLT data for the most recent month. The data in this table are collected primarily from U.S.-based custodians. Since U.S. securities held in overseas custody accounts may not be attributed to the actual owners, the data may not provide a precise accounting of individual country ownership of Treasury securities (see TIC FAQ #7 at:…).

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