Salient to Investors:
Foreign investors are adding Treasuries at the slowest pace since 2006 amid the worst rout in 4 years, and own less than 50 percent of Treasuries outstanding for the first time since March 2012. However, China boosted its stake in 2013 to the most on record – adding US bonds in 7 of the last 8 months.
The biggest sellers this year are from the Caribbean. James Bianco at Bianco Research said American hedge funds domiciled in Greenwich, Connecticut, that have their nameplates in the Cayman Islands were huge sellers of Treasuries in May; and hedge funds, many of which are registered in the Caribbean, move much faster than everybody else.
Thomas Atteberry at First Pacific Advisors said if foreign central banks are not an incremental buyer of new Treasuries and the Fed is going to taper then the Treasury will have to find another source of demand, which will want a higher return. First Pacific only owns Treasuries that mature in a maximum of 6 months.
Thomas Roth at Mitsubishi UFJ Securities USA said his firm’s Japanese clients stepped back because they don’t want to catch the falling knife.
Michael Pond at Barclays said there is optimism about the US economy and Asian foreign officials were hesitant, but wanted to put on bearish positions in Treasuries to reflect that.
Investment Company Institute said assets flowed out of bond mutual funds for 6 straight weeks, the longest stretch since December 2008.
Thomas Higgins at Standish Mellon Asset Mgmt said people saw no value in Treasuries at yields as low as they were, and clearly suppressed by the Fed to below fundamental value,
The median estimate calls for yields on 10-yr Treasuries to rise to 2.63 percent in 2013.
Michael Brandes at Citi Private Bank sees a shift occurring with a leveling out of Treasury purchases: an inflection point in the US rate cycle with the trend for higher yields.
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