The Unwinding of QE Has Begun
In the first six months of this year, foreign central banks sold a net $192 billion of U.S. Treasury bonds, more than double the pace in the same period last year, when they sold $83 billion.
China, Japan, France, Brazil and Colombia led the pack of countries dumping U.S. debt. It’s the largest selloff of U.S. debt since at least 1978, according to Treasury Department data.
“Net selling of U.S. notes and bonds year to date thru June is historic,” says Peter Boockvar, chief market analyst at the Lindsey Group, an investing firm in Virginia.
Despite all the selling by these countries, private demand for the bonds has sky rocketed. Demand is so high that the U.S. can afford to pay historically low interest rates. The 10-year U.S. Treasury hit a record low of 1.34% earlier this year, before bouncing back to about 1.58%, currently.
In other words, central banks have not been very important in shaping the path of long-term treasury yields. You, me, and our financial intermediaries, on the other hand, have been a key reason for the decline of U.S. treasury yields to historic lows. While not the only factor, our seemingly insatiable desire for safe assets has been a pivotal factor behind the low interest rates. And, as can be seen in the figure below, the decline in safe asset yields is a global phenomenon:
Source: http://macromarketmusings.blogspot.com/2016/08/the-unwinding-of-qe-has-begun.html
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