Salient to Investors:

International investors bought more Treasuries in Q1 2013 than in any other start to a year since 2009. China has been buying Treasuries at the fastest pace since 2011.

Wan-Chong Kung at Nuveen Asset Mgmt said the US is standing out as a place of relative growth, strength and stability – the big, bad outcomes have been avoided.

The average economist expects GDP to be growing at a 2.6 percent annual rate by the end of 2013 versus an average of 1.97 percent for G-10 nations.

George Goncalves at Nomura said people are starting to see the US. as the growth engine of the world as we are finally getting our act together, and foreign central banks feel comfort in the American story.

Allen Lei at Hontai Life Insurance said Treasury yields will look extra appealing as sequestration curbs growth in the next few months.

Michael Cheah at SunAmerica Asset Mgmt said China’s purchases may be due to concern that the value of  the euro and the yen is being diminished as reserve currencies and does not make sense for China to reduce the allocation of dollar assets.

Ali Jalai at Scotiabank said currency valuations drive bond demand from China, which controls the appreciation of the yuan, and Japan – China buys Treasuries to protect its exchange rate, while the weakening of the yen increases demand from institutions in Japan.

Hideo Shimomura at Mitsubishi UFJ Asset Mgmt said disinflationary pressure in the US, reinforced by the dollar’s strength, enhances the appeal of Treasuries and will prompt the Fed to keep buying because it’s not a self-expanding economy.

Shyam Rajan at Bank of America Merrill Lynch forecasts the Fed will buy $540 billion in Treasuries in 2013, and foreign holdings will match or exceed that total – if these two biggest holders of the market continue buying at the same pace, the supply shortage in the Treasury market remains.

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