Thread by @Trinhnomics

Let's follow the $ - foreign holders of @USTreasury (stock not flow so valuation impact): Japan bought & largest holder at 1,168
China holdings flat at 1,101.6
Investors sold long-end👇🏻
Yield curve since 1 October👇🏻 & short end moved downward (Fed rate cuts) & long-end shifted up

@USTreasury FYI, @USTreasury terminology:

Bills = US govies issued less than 1yr
Notes = 2, 3, 5, 10 yrs
Bonds = 30 yrs

People tend to just use the word bonds to describe fixed income but those are the terms, most foreigners own than 1yr & they sold those in Oct (less fear of recession)

@USTreasury Let's talk about @USTreasury curve - basically investor positioning of fixed income & clearly here they have REPRICED their long-end expectations of interest rates UPWARD.Meanwhile, they have moved downward for short-end. This is called curve steepening vs the Nike sign (inverted

@USTreasury A lot of ink has been spilled about the Nike sign (or inverted yield curve) and usually people interpret that as bad omen as it means people FEAR recession. And not just US recession but GLOBAL🥶

Why? The MOST LIQUID ASSET in the world. What is liquidity? Ability to sell & buy!

@USTreasury What does that mean? Look at this table of the STOCK of UST ownership. You see the Asians top the chart (they recycle their current account surplus in @USTreasury & they buy mostly longer end stuff). So a lot of buyers & sellers.

If GLOBAL investors fear, they buy @USTreasury 👈🏻

@USTreasury In other words, as the FEAR subsided in October, they sold some longer end since (hence the CURVE SHIFTED UPWARD for the longer end) and this is especially on the back of the Fed cutting rates (short end downward) & so instead of Nike sign we got an upward sloping curve

👇🏻👇🏻👇🏻

@USTreasury Meaning, what has happened with this yield curve doesn't mean that:
*There won't be a recession or there will be just because of the inversion/not
*It just shows investors' expectations of the future & sometimes they are right & sometimes they are wrong
*Markets do REPRICE 👈🏻👈🏻

@USTreasury Btw, investors' expectations matter b/c if they persist, they can manifest the future as by not investing in risk assets, can reduce liquidity for areas needed for growth & hence create the future they fear. Hence, policymakers pay attention to expectations (UST &stock price...)

@USTreasury The reason why EM Asia, especially the CURRENT ACCOUNT DEFICIT, economies have not done well this year is due to the RISK AVERSION of equity investors & also cross-borders lending. If u need to import capital, that is not good news. Despite rate cuts, transmission hasn't worked👈🏻