A Treasuries Puzzle: 200% of Issuance?

Riddle me this, Treasury market geeks:

Indeed, foreign purchases of Treasuries have fallen in recent quarters from their boom-like levels of recent years. Russell Napier, a global macro strategist with CLSA Asia-Pacific Markets, notes that in some years this influx of foreign cash exceeded the size of total Treasury issuance. Until 2010, foreign central banks were buyers of at least 40 per cent of what the Treasury cranked out.

However, foreign central banks bought just 16 per cent of Treasury issuance in the first quarter of 2011. As part of its quantitative easing, the Federal Reserve bought the equivalent of almost 200 per cent.

How does that work? What I am I misunderstanding? Are they adding purchases of other than newly issued Treasuries? I may just be tired and thick(er) tonight.

via As disaster looms, investors keep buying Treasuries – The Globe and Mail.


  1. Fed cant buy directly from Treasury (has to go through dealers).
    Napier compares Fed's buying of Tsys to total issuance. The way the math works is that some other sector of the economy (in the 1Q2011 specifically households) sold Treasuries from their holdings. This data comes from Flow of Funds.

  2. The piece of the puzzle that continues to elude me is who purchases the remaining Treasury issuance required to fund the rest of the US Government’s deficit this year? Though Q1, the UST has issued ~$200Bn of new debt. That leaves an additional $1.2Tn of funding required to meet the Government’s obligations this year.

    China will purchase some of that, although probably not more than roughly the amount of their trade imbalance (circa another $200Bn this year), as they won’t want to weaken their currency and absorb the risk of imported US inflation in China. Japan and the other nations will also acquire some paper but expecting more than another $300Bn out of those accounts seems like a low probability (the rate of the last 3 years and faster than the Q1 accumulation). That leaves $700Bn unspoken for.

    Placing that level of paper seems to leave the Fed with two options: 1) allow rates to rise to spur demand for USTs or 2) acquire the paper themselves. Given the slowing near term indicators and the Fed’s concern about the intransigence of unemployment, rate increases appear to be an intolerable option. If that’s true, is QE3 inevitable? Who would be the “marginal” buyer for the incremental $700Bn of USTs if not the Fed?