Minyan Mailbag - Foreign Participation in Treasury Auction
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Why isn't the world buying other countries' bonds? The NZ treasury equivalent bonds yield 5.3% for roughly 18 months? And, those bonds carry the same AAA rating. How come the world doesn't flock to those? Or Australian bonds?
This is exactly my question, from a purely economic benefit point of
view. If foreign investors were acting rationally to maximize their return for risk they surely would invest less in dollars and more in other currencies (bonds of other countries).
But there is much going on here, much manipulation (or perhaps I should use the government's term "intervention").
The world is drunk on dollars. Central banks have interrupted the normal process of supply and demand and risk for reward. Japan is buying our bonds in lieu of other investments to their economic detriment because they have been "persuaded" that in this world they must keep the U.S. economy going with artificially low interest rates so "we buy their stuff".
This is the trillion dollar question. When will the world begin to act rationally to their own economic benefit? Bulls argue that they are, that they "know" that the U.S. is the place to invest for the future, that future returns on things like equities, private businesses, real estate, etc. will be higher here than other places. This is a subjective argument.
So right now this subjectivity is outweighing the hard facts that other countries' bonds provide better pure economics.
I cannot tell you when this will change, I can only tell you what signs to watch for. If the dollar yen begins to break down through 105 and then 100 it will be a signal that Japan is changing their minds.
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