QE3 and US treasury

jamesmith

simply who is buying us treasuries? foreign countries are buying much less compared to 2008.

The Fed has been buying with QE1 and QE2, QE2 is actually buying short term treasury, when QE2 ends, FED start operational twist to sell short term treasury and buy long term. Fed stopped increasing their book because selling short term, buying long term, the total amount FED holds remains unchanged.

That means average investors are buying. In fact they bought more than FED and foreigners combined in first quarter of 2012. This is likely due to demand for a save haven. However with risk appetite coming back, average investor's money will flow from treasury to risker assets.

This left the FED with two choices, 1) increase interest to attract more buyer, 2) buy more with another QE. Since FED promised low interest until 2014, and higher rate will have impact on economy recovery, rates are unlikely to go up in near future. This left QE3 as the only option to keep interest low when there's not enough people buying US treasury.

charts from: http://www.ritholtz.com/blog/201 ... ing-u-s-treasuries/


Foreign purchase slowed down


Fed's book didn't change with Operation Twist




average investors buying increased




Banks do not buy treasuries

atrader

QE's are useless for recovery, it is a structural problem. the possible ways are fiscal policy/taxes/wars, to lead to some meaningful changes.  QE3 may not come in election period. Treasury is in a good trading range now.

silicon_beaver

re-edited size of the charts.