Who is Buying U.S. Treasuries?

One of the persistent questions from investors is who is going to buy all these Treasuries the government is issuing to finance the yawning budget deficit. Ironically, thus far this year, at least three countries, Germany, the UK and today, joined by China, have failed in selling the amount of bonds they intended. The U.S. has not had that problem. Today's 10-year auction, like yesterday's 3-year note sale was warmly received and it does appear that indirect bidders, which include foreign central banks are picking up a greater share (there was a rule change recently that could be bolstering the indirect bid figures, though it appears to make the indirect bidders more transparent and not concealed in primary dealer activity).

There is another buyer of Treasuries. Look around you. American households (and non-for-profit organizations) bought $377.3 billion of Treasuries in Q1 2009 and held $643.89 billon, the greatest amount in nearly a decade. By comparison, note that Treasury data indicates that foreign central banks increased their holdings by almost $160 billon.

The U.S. reports May TIC data on July 16th. In April, foreign investors were small net buyers of U.S. long-term assets, but were sizable sellers of bills, leading to a net outflow of about $53 billion. American investors, for their part, in addition to buying Treasuries, appear to be deploying money into foreign equity markets, financing it in part at least through the drawing down of money market funds.