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by aliston
4620 days ago
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30% of treasury bonds are owned by the Fed, and in some recent auctions, the Fed has purchased as much as 90% of the new issuance. We would have a major problem if China were to dump their bonds on the market because there aren't too many buyers when you're at such low interest rates. |
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In fact, most treasuries are not held by retail investors or mutual funds in the US [1]. The largest buyer as of late has been the Fed [2], indicating that when the Fed is pursuing ZIRP, there aren't a whole lot of other buyers. If China were to dump its bond portfolio, either interest rates would spike, or the Fed would have to expand its balance sheet by another trillion dollars.
[1] http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-N... [2] http://www.bloomberg.com/news/2012-12-03/treasury-scarcity-t...