US Treasuries the latest review on October 20, 2023
I made a request in SIFMA and received the Excel tables with all data about the bond market in the US to analyse the capital flow in so turbulent market. You can upload these files by the links below. If the links do not work, I will leave here a link to my Google Disk. https://drive.google.com/drive/folders/1ApsuwV_lJLAxtrU0twggp9xiKMtQ9ZDW?usp=share_link
- US Agency Debt Statistics
- US Asset-Backed Securities Statistics
- US Corporate Bond Statistics
- US Fixed Income Securities Statistics
- US Equity and Related Statistics
- US Money Market Instruments Statistics
- US Mortgage-Backed Securities Statistics
- US Municipal Bonds Statistics
- US Repo Statistics Securities Statistics
- US Treasury Securities Statistics
REPO rates
There are in the table the rates of Repo depending on collateral. In q3 2023 average rate for REPO with collateral of MBS or US Treasuries was the same 5.3.
For many years the funds, brokers, and banks could make short-term lending with REPO and buy US treasuries or MBS but now because if negative yield spread they can not do it. This situation started in q3 2022 and continue for almost a year.
For example, from the table above we can see that all trading volume of MBD is already concentrated in the hands of FNMA and FRMC, and just less than 30% of the trading coming through other participants. But all MBS agencies like Annaly Capital, AGNC, and other funds reduced their capital 2 times since 2022 and leveraged 3 times, which meant that their positions in MBS were reduced by 300–400 bln USD overall. The other participants are hidden but we know them it is FED.
How did the government borrow money this year?
US government-issued debt in the bills with a duration of no more than 1 year. It’s connected with the slow demand for longer-term bonds and notes because FED reduced its balance in the US debt >1year. The government did not have the option to issue more debt in short-term securities coming as a reason for increasing rates in the short-term debt against long-term debt. But the difference is that with increasing long-term debt government has a big room before it becomes dangerous and close to default, and issuance much bigger of short-term debts has no big room before coming in ratings reduction as we saw at summer 2 downgrades from Fitch and Moody.
As a result of the selloff in the markets in 2022, a lot of paper billionaires like Elon Musk or Bezos withdrew a few hundred billion dollars from the markets and their cash is kept in the US treasuries to save taxes. That’s why individual holders were increased almost 2 times in 2022 and 2023. It’s not a patriotism. However, fED funds banks reduced their holdings in UST.
In conclusion, I can say that the US government has no big room to increase the balance of short-term debts, and they already started a process of issuing more long-term debts as it was earlier. In August they issued 103 bln US dollars of debt in 10 years UST. They will need to issue at least 1,5–2 trillion dollars of debt in 1 year + notes and bonds to replace short-term debts in the next 6–9 months. As a result, they will sell more long-term duration papers increase the rates of whole 1+ years bonds, and buy back short-term debts reducing their rates. As a result yield curve will become positive next Spring. It will mean that a crisis is gone. But FED should keep the rates here or maximum hike for another 0,5% to sell their short-term debts balance with a profit to US treasuries and replace
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