As discussed earlier, Asia dominated foreign purchases of US treasuries in Q1. This time let's take a look at how the overall composition of treasury bond holders changed between the end of 2011-Q3 and 2012-Q1 - a six-month period that saw a great deal of volatility in the treasury market.
Here is the breakdown of holders at the end of Q3. The "Other" category here represents treasuries held by federal pension plans, broker/dealers, insurance firms, banks, credit unions, and other US holders (the Fed has a full breakdown of this group but it's consolidated here to fit on the pie chart) .
|Total treasuries outstanding|
|US households net worth|
This puzzle was cracked by Bianco Research who pointed out last year that the Fed is simply misusing the term "household". It turns out to be nothing more than a residual account - if it doesn't fall into any other domestic category, it ends up under the household bucket. So if these are not the mom-and-pop accounts, which is what the "household" category sounds like, who is actually buying all these treasuries?
Bianco Research: - Our guess is the domestic buyer is a leveraged carry trader, a mutual fund, a brokerage subsidiary or other group that does not have its own category so it gets "dumped" into the default category of "households."That means that other than foreigners, the leveraged trader has been funding the US budget deficit. As much as politicians wish to believe in stable mom-and-pop treasury purchases called "households", the reality is quite different. The reality is that the US government is relying on slowing Asia and domestic leveraged speculators for its rapidly growing funding needs. And such a scheme is clearly not sustainable in the long term.