When The Only Sovereign Bond Buyers Are Central Banks (Last Man Standing?)

This is a syndicated repost courtesy of Confounded Interest . To view original, click here. Reposted with permission.

The US Federal Reserve is attempting to shrink its balance sheet (of previous purchases of US Treasury Notes and Bond as well as Agency Mortgage-backed Securities. Largely achieved by letting the assets mature.

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On the other hands, Central Banks like Bank of Japan, People’s Bank of China and the European Central Bank keep on increasing their balance sheets.

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But let us focus on the ECB since it has several Brexit-exposed countries such as Germany, France and Italy. The ECB has dramatically increased its purchase of public sector securities.

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Now, which countries are the beneficiaries of ECB purchases. Of course, Germany’s top economy with the largest zombie banks (like Deutsche Bank) is the leader, followed by France and then budget-challenged Italy.

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Speaking of Deutsche Bank (my former employer), here is a chart showing that ECB purchases are seven times higher than net issuance. Not a sustainable trend by any means.

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Only the most adventurous investors will touch Puerto Rican debt (technically municipal debt), Venezuelan or Argentinian debt. Or Turkey’s debt.

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With 17 European countries with negative 2 year nominal yields (meaning negative REAL yields are well), along with Japan, what private investor wants to buy negative yield sovereign debt?

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So, the US appears to be “The Last Man Standing” in the sovereign debt market. And even in the US debt market,  both the 10-year and 2-year Treasury Notes are seeing large shorting activity.

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Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

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