Tuesday, February 16, 2010

The Future Problem Has Arrived

Over the past few months we have heard "noise" coming from China that they are fed up with purchasing the astronomical United States debt load.

Today we received the TIC data that confirms this is not rumor but fact.

The chart below shows that China sold 34.2 billion in US debt in December; a massive sell off from the country who was the last hope of United States survival. (Click on chart to enlarge)


There is another interesting piece of information we received from the chart.

When an entity purchases United States debt (treasury bonds) it is usually done through a primary dealer.  There are 16 primary dealers that purchase debt at an auction and they then sell it into the market.

Over the past 5 months there has been an unusual occurence in the auctions.  An unknown "direct bidder" has entered the auctions, bypassed the primary dealers, and has been purchasing an enormous amount of the debt directly from the government.

This bidder has remained anonymous and has create an inquiry around the web from financial nerds like myself on whose this bidder may be.

Back to the chart above.  As you can see the US debt holdings for the UK have exploded upward over the past two months with over $70 billion in new holdings. 

The UK is currently drowning in debt, just like the United States, so the likelihood of their government purchasing this quantity is very unrealistic.

That means a hedge fund or private fund has purchased the debt through a UK address. 

This would provide an answer to the mysterious "direct" bidder that has entered the market over the past 5 months.

Most of the financial nerds assumed this was China acting in secret, but with their recent debt dumping, it takes them off the list.

Time will tell who is making the purchases.

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