With the Dow close to all-time highs and crude oil near $70, QT is impacting this critical market.
QT Pushing Interest Rates Higher
September 18 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: After selling a net $48.6b of US notes and bonds in June, the largest amount since October 2016, foreigners stepped back in with net purchases of $18.9b in July. This brings the year to date purchases to $39b which compares to full year buying in 2017 of $20b. We saw selling in previous years and buying of $400b per year in 2011 and 2012. Central banks were again sellers while the private side offset that…
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For the 4th month in the past 5 China was a net seller of longer term Treasuries and has taken their total holdings to the least since January. Japan continued their selling but did so only modestly in July and it was offset by the buying of bills. Their holdings stand just off the lowest amount in 7 years.
Bottom line, if it wasn’t for $43.2b of purchases in February, there would be net selling on the year. Over the past 5 months, the net selling has totaled about $12b. We have a situation now that foreigners have dramatically cut back on their purchases over the past few years. We know the Fed is now a seller essentially of Treasuries via QT as a new buyer to replace them is needed. Pension funds are likely done front loading the filling up of their Treasury purchases this year.
10-Year Yield Closing In On Highest Level In 7 Years!
The 10 yr inflation breakeven rate is only 6.5 bps from a 4 year high at 2.13%. The ECB is about to cut in half its QE purchases and the German 10 yr yield is up in 10 of the last 12 trading days and the BoJ has cut in half their JGB purchases from the peak. All this likely helps to explain why the 10 yr yield is going out today at 3.05% with its sights on 3.11%, the high close of the year seen in May and which was the highest yield going back to July 2011. I continue to expect higher yields across the curve.
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