America’s new love affair with Treasury bonds

August 18, 2009
The always perspicacious Andy Busch of BMO Capital Markets notes how US households are suddenly into bonds — and then looks around the corner:
This has been the major, major shift in the structure of the US Treasury market that was unanticipated. From Q1, US households held $643.9 billion in Treasury debt and that is up from $256.6 billion in Q4 2008. Households bought an astounding 84% of new US Treasury issuances in Q1. The total holdings represent about 1% of US household assets. According to the WSJ, “Although that is the highest since 2001, Treasurys regularly made up 5% of assets in the 1950s, and as recently as 1995 they were 2.6% of assets. History suggests there is plenty of room for households to increase their holdings.”

With the US current account shrinking, the US is less dependent on foreigners to fund it’s deficit as the trade red ink has slowed to below $10 a month ex oil. In the medium term, this is a strong positive for the US dollar as it means the United States is funding itself more domestically. The longer term issue is whether the United States continues down the fiscal path of becoming the Japanese where domestic savers fund a fiscal deficit that is above 180% of GDP.


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Average investors do not understand how they will lose money buying low yield treasuries either by not holding them to maturity or having their returns eroded by inflation.

Everyone is looking for something safe. Treasuries were the one safe haven last year so money is flowing there just as they chase the hot money manager who is about to cool off.

For 25 years you could blindly make money in stocks, bonds and real estate-now they are all dicey at best.

Posted by Pat Duggan | Report as abusive

Call me old-fashioned, fussy, pernickety, or whatever you please.
I find it very disappointing, pathetic actually, that a journalist posting on the Reuters website can’t write English. There is a difference between it’s and its. The former means it is and the latter is the possessive form of it. It is unprofessional and detracts from what is otherwise an interesting post.

Posted by Simon | Report as abusive

[…] James Pethokoukis – America’s new love affair with Treasury bonds […]

Posted by News from around the web: 2009-08-19 – Credit Writedowns | Report as abusive

Gee, maybe the American public is smarter than most think. Real yields on the 10-year are at a 16-year high. We can sell them to the “experts” for a tidy capital gain when the yield hits 1% and the S&P is sitting at 575.

And yes, American savers will finance our debt just like the Japanese have. Not busting up Citi, BofA and GS gives them no other choice.

Posted by Mike | Report as abusive

The Treasury Trap…

Timothy Geithner has been peddling Treasury bonds like a used car salesman since he and his oddly-shaped head took over the books of the most expensive government in the world. As noted before, former Treasury addicts like China are starting……

Posted by The Melting Pot Project | Report as abusive

[…] new love affair with Treasury […]

Posted by ETF FOOL | Report as abusive