Thread by @Brad_Setser

I think PGIM's Daleep Singh got this right --the structural issue in the Treasury market is the reduction in "predictable sources of demand" amid "record amounts of government debt issuance." It isn't so much outright sales, as the absence of price insensitive buyers.

1/

The Fed isn't technically selling, but it also isn't reinvesting maturing bonds back into the market. QT and all.

China probably isn't selling either, but the US data equally doesn't show purchases (and it is consistent with a bit of bond roll off in 23 tho not 22).

2/

Japanese investors aren't selling like they did at times last year, but the renewed bid this year is modest and perhaps more price sensitive in the past.

3/

And all this probably would be more pronounced if there was scope to disaggregate data by maturity buckets. With an inverted yield curve, there isn't predictable demand for the 10y from Japanese banks looking borrowing 3m money and getting a hedged return v JGBS

4/

Similarly, with an inverted curve Central Bank Reserve managers can just sit on a portfolio of 2y notes and earn 5% (way more in the past). Low rates on the front end of the note curve no longer push them into 5y and out notes ...

5/

So I think there is something to the idea of looking at issuance, particularly for maturities of over 5ys, relative to the remaining "predictable sources of demand"

Quote from today's @NickTimiraos WSJ story

6/6

wsj.com/economy/centra…