Tags: Mom | Pop | Investors | Treasury

Study: Mom-and-Pop Investors Fueling Treasury Demand

Tuesday, 12 Jun 2012 02:00 PM

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Demand for U.S. Treasury notes has been so strong lately that yields have plunged to around 1.5 percent mainly due to retail investors flocking to U.S. government debt on homegrown and overseas uncertainty, and not due to Fed stimulus, data show.

The Fed has spent the last several years buying Treasury bonds from banks as well as reshuffling its holdings by selling short-dated Treasury securities and snapping up longer-dated debt with the aim of stimulating the economy.

Still, fear-driven retail investors are the ones pushing yields down these days, and not Federal Reserve intervention.

Editor's Note: The Final Turning Predicted for America. See Proof.

"The conventional view is that 10-year Treasury yields have been pushed down to 1.5 percent and 10-year (Treasury Inflation Protected Securities) yields to -0.5 percent by the actions of the Federal Reserve and the safe haven demand from foreign investors," Capital Economics said in a research note, CNBC reports

"The reality, however, is slightly different."

U.S. households snapped up $170 billion in low-yielding government debt during the first quarter of this year, while foreigners increased their holdings by $110 billion, CNBC adds.

The Federal Reserve, meanwhile, remains rather mute on whether it will resume buying Treasury bonds from banks, a policy officially known as quantitative easing.

A previous round of quantitative easing, in which the Fed bought $600 billion Treasury instruments from banks, ended in June of 2011.

A first round began in late 2008 and saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage-backed securities.

Fears that Greece may default on its sovereign debts and abandon the euro and pressure the larger Spain and Italy to consider following suit have sparked demand for U.S. debt at home and abroad.

Yields have crept up slightly in recent sessions as investors seem to be giving Europe a little breathing room and are putting some money back in euro-denominated venues.

"There has been cautious optimism that Europe is ready to get their act together," says Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors, according to Bloomberg.

"And the market still has supply to deal with. Still, policy makers seem to only act when they are at the edge of a cliff."

Editor's Note: The Final Turning Predicted for America. See Proof.


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