Hot Math Chart Porn: Bill Gross Isn't the Only One Dumping Treasurys

 pic credit: toothpaste for dinner

Bill Gross is either trying to call the government's bluff or is serious about keeping his money safe. Either way, this might be the chance the Caribbean Banking Centers have been waiting for to finally surpass China as our second biggest creditor. First, as we all know, is the Federal Reserve. Oh sorry, that's not really common knowledge but I'm sure that's not on purpose or anything.

Bloomberg:

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.

Pimco’s $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, California-based company’s website. The fund’s net cash-and-equivalent position surged from 5 percent to 23 percent in February, the highest since May 2008.

Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.

WC Varones asks the important question
:

If the world's biggest bond fund manager won't touch the $1 trillion-plus in new issuance every year, to say nothing of rolling maturing debt, who's going to buy Timmy's junk when the Dirty Fed stops its QE2 monetization? That debt ain't gonna monetize itself, you know.

It gets better. Whereas previously we had a good reference point to see how much debt China has been dumping, we're now stuck from July 2010 on, when the Treasury changed the math. When I last checked major holders of U.S. debt in November of 2010, the chart looked like this:


But looking at it last night, it now looks like this:


If you didn't know any better, you might think China gobbled up a whole bunch of new debt, but obviously the larger number is not reflected in the earlier chart, which clearly shows China adding only $3 billion in Treasury debt.

The explanation as to the huge disparity in numbers is a footnote buried on the chart as "New series reflect new benchmark survey taken in this month. Estimated positions based on the previous survey are shown for comparison." which can be roughly translated as rewriting the rules in the middle of the game. The Treasury revises its foreign debt estimates every 5 years and the New York Fed has a convenient explanation for why the Treasury doesn't have more specific data about our foreign owners (via the May 1998 issue of Current Issues in Economics and Finance):

Knowing exactly which foreigners own specific amounts of U.S. Treasury debt in a global market of about $3.4 trillion in outstanding issues, however, is simply not possible. This inability to identify the ultimate foreign owners of Treasury securities does not reflect a lack of effort by the U.S. government to collect data on the foreign ownership of its debt. Nor is it the result of any governmental unwillingness to make data available to the public. Rather, the inability of both policymakers and private sector analysts to determine with full accuracy the foreign ownership of U.S. Treasury debt—whether held by private or official investors—stems not only from the Treasury Department’s obligation to respect the confidentiality of individual respondents but also from the nature of the reporting requirements themselves.

It seems ridiculous, from an economic security standpoint, that we would not have an more accurate number to work with and would have to rely on a benchmark survey undertaken every five years to figure out how much debt is out there and who owns it. But there must be rhyme behind that reason, rhyme which obviously escapes regular folk like us.

Too bad the Fed is still our largest creditor. The Fed holds $1.2 trillion in Treasury debt according to their latest balance sheet release as of March 10. According to these magic new numbers from the Treasury, China holds $1.1 trillion.



Me thinks we're still fucked, magic Treasury math and all.

Psst, dear Treasury, mark Bill down as holding a big fat $0. You're welcome to revise that however you like.

2 comments:

chairmanben said...

3 month sabbatical beginning June.

Joseph said...

It seems ridiculous, from an economic security standpoint, that we would not have an more accurate number to work with and would have to rely on a benchmark survey undertaken every five years to figure out how much debt is out there and who owns it.
Just a thought here but maybe they're lying...strike that...participating in a leveraged suppression of the truth to prevent 'frothing' of Treasuries.