September 13, 2011, 12:46 PM
Foreigners may be buying more Treasurys than it seems
Deborah Levine
Marketwatch.com
Bond investors and analysts may have to reconsider how the interpret some statistics released immediately following each Treasury auction – including a 10-year note 10_year sale Tuesday – as an instant gauge of demand from investors.
One of those metrics is the amount of the auction bought for a class of buyers called indirect bidders. It’s known that this category includes bids from foreign central banks and monetary authorities. Investors and traders look at this as a snapshot of foreign demand for U.S. debt – which is pretty vital as about half of Treasury bonds are held outside the country.
However, the instant numbers after each auction get broken down more thoroughly and released by the government some time later. And when Wrightson ICAP took a look at those allotment numbers for the mid-August auctions, including the last 10-year sale, they found something unusual – foreign investors had also placing bids in the “direct bidder” category, which usually covers other non-primary dealers.
“It turned out that the total volume of foreign awards exceeded the indirect bid total, implying that one or more foreign investor had submitted an ‘other direct’ tender on their own auction terminal,” analysts at Wrightson wrote. “To the best of our knowledge, the August 10-year note sale was the first coupon offering in which the auction results provided concrete evidence of foreign bids in the other direct category.”
The same slip happened in the 30-year 30_year auction last month too: there were more foreign allotments than were seen as indirect bids the day of the auction.
“So what this means is that the ages-old assumption that the indirect bidder award reflects the foreign bid is now just a relic of another age,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
He says the only thing to really look at is the combined direct and indirect categories after each auction as a proxy for overall investor demand – not necessarily foreign or domestic – compared to the proportion bought by dealers, who tend to turn around and sell the newly-acquired debt. And it’s considered better for the market, not to mention the government, if more investors buy Treasury bonds than dealers
http://blogs.marketwatch.com/thetell/2011/09/13/foreigners-maybe-buying-more-treasurys-than-it-seems/
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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