I’m sure that the Biden administration has a plan. And I’m sure the plan involves a commission to focus on diversity, equity and inclusion in treasury bond sales. Perhaps subsidizing bond purchases for failed African and Latin American countries. Not to mention CHAZ. In the real world though, the financial mess is worsening.
In times of Treasury turmoil, the biggest investor outside American soil has historically lent a helping hand. Not this time round.
Japanese institutional managers — known for their legendary US debt buying sprees in recent decades — are now fuelling the great bond sell-off just as the US Federal Reserve (Fed) pares its US$9 trillion (about RM39.18 trillion) balance sheet.
The latest data from BMO Capital Markets show the largest overseas holder of Treasuries has offloaded almost US$60 billion over the past three months. While that may be small change relative to the Japan’s US$1.3 trillion stockpile, the divestment threatens to grow.
It’s not great news, anywhere.
A Bloomberg index of long-term US government bonds has dropped more than 18 per cent this year, leaving it on track for its biggest fall on record dating back to 1973.
Time for some more equity, diversity, and inclusion. That solves everything, right?
A fed-funds rate that could end up as high as 6%, a level which hasn’t been seen in more than 20 years, is beginning to be seen as an outside possibility by some investors — bringing with it the risk of another painful round of selloffs in government bonds like the one seen this year.
That’s one of the potential outcomes being entertained by some in financial markets, even though it’s much too soon to say if the Fed will ever get there: