Wall Street Dealers Absorb the Growing Supply of the US Treasury

(Reuters) – Wall Street bond companies are absorbing a growing volume of Treasury debt as the US government seeks to fill a growing budget deficit as a result of last December's tax cut, data released Tuesday said. by the Treasury Department.

In late September, the Treasury sold a combined fixed-rate debt of two years, five years and seven years totaling $ 106 billion, at the moderate request of investors.

The Treasury will sell this week a stock of bonds of three, ten and thirty years, worth $ 74 billion.

In addition to the increase in the stock of debt securities, analysts attributed the massive sell-off of the bond market last week to concerns about inflation spurred by optimistic economic data, which could lead to faster rates of increase. interest of the Federal Reserve.

Rising bond yields and trade between Washington and Beijing have boosted the dollar, reducing the demand for treasury bills abroad in recent months.

Growing US yields are attracting some foreign investors, but a high greenback has made the hedge more expensive compared to other currencies, analysts said.

The 10-year US Treasury yield hit a seven-year high of 3.261 percent on Tuesday.

In Japan, investors reduced their holdings of US bonds in August, when US yields were below current levels.

At the Treasury Securities auctions two weeks ago, foreign investors bought fewer issues of two and seven year debt securities than the previous month, but they bought $ 4.337 billion worth of securities. five-year notes, the highest amount since March.

While foreign purchases at Treasury auctions have declined, bond brokers have increased their purchases, although they prefer to resell them quickly with a profit.

The 23 major bond companies or "main dealers" on Wall Street may have done so, for example, to comply with the requirements to maintain their status and deal directly with the Federal Reserve.

By the end of September, bond dealers bought $ 17,701 billion worth of bonds at two years, a record since July 2014 and $ 15,698 billion the previous month.

They bought $ 13.734 billion of debt over five years, with a return of 2.997%, a peak in the decade. This is the highest amount purchased since July 2016, compared to $ 9.802 billion at the end of August.

They bought $ 8.379 billion worth of seven-year bonds, a record since September 2016, up from $ 7.151 billion the previous month.

The two- and seven-year notes were sold at yields of 2.829% and 3.034%, respectively.

Purchases of investment funds at Treasury auctions in late September were at their recent average, according to Treasury data.