Fed Recovery Doubts Spur Investor Bid for Treasuries – Bloomberg 09-24-12

U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010.

Tom Graff at Brown Advisory said bonds have stopped being a total-return market as high uncertainty has caused excess cash to build up among household assets as individuals seek safety over return.

Foreign investors own 50.4 percent of outstanding Treasuries versus 49 percent in May 2011 and 55.7 percent in 2008. China holds $1.15 trillion versus peak of $1.31 trillion in July 2011.

Robert Tipp at Prudential Financial said people are concerned about return of principal, not return on principal.

ICI reports average monthly inflows of $16.6 billion from September 2011 through July 2012 into taxable bond mutual funds versus average monthly outflow of $10.9 billion from stock funds.

Kathleen Gaffney at Loomis Sayles doesn’t own Treasuries because of the market risk that interest rates will start rising – any kind of traction in the economy will move rates very sharply.

Bloomberg estimates an investment of $10 million in the current 10-year T-note would lose $760,000 should the yield rise to its average during the past five years of 3.07 percent by the end of 2013.

Bloomberg poll expects the T-yield at 1.75 percent at year-end, 2 percent by mid-2013, GDP  of 2.1 percent in 2013.

Gary Shilling said bond yields may fall further as consumers continue to reduce debt, helping to curb inflation, and central banks’ stimulus isn’t affecting inflation because there’s too much supply in the world – deleveraging in the private sector is swamping everything on the monetary and fiscal fronts.