Hedge funds = households?

August 20, 2009

Data showing that American households and their spendthrift ways meant big purchases of U.S. Treasuries got a lot of traction earlier this week. Not surprising given the ongoing concerns that one day we’ll wake up and foreign central banks and other overseas investors will decide they’re no longer enamored with the growing pile of U.S. debt. Someone has to step up and it may as well be those U.S. savers.

The data in question came from the Federal Reserve’s flow of funds data. David Ader, CRT Capital’s intrepid bond analyst, decided to take a closer look to see what’s going on.

From Ader:

What we found was that the category includes…get this…”domestic hedge funds” … Jim Bianco, an old friend, points out the category is a plug figure and that after all the other Treasury buying sources are accounted for what’s left is this category.  In short, a very flawed and titularly misleading measure.

But individual investors are still plowing their new found savings into safe securities like Treasuries.

Clearly someone domestically is buying…and that may be the only point…net bond fund flows have surged this year even as yields backed up. Indeed the cumulative buying as of the end of June was about $135 bn, the most on record by far.  It may come as little surprise that bond funds have seen greater inflows than equity funds.

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