The European Central Bank has opted for negative interest rates. Is this why “Belgium” has emerged as a large buyer of interest paying US Treasuries?
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Why Belgium Makes Sense as the Mystery Buyer of Massive Amounts of U.S. Treasuries
It perhaps makes sense now why “Belgium” has been buying massive amounts of U.S. Treasuries recently. If the European Central Bank (ECB) is now going to charge interest to banks to hold money there, far better for European banks to hold their excess reserves* in dollars/U.S. Treasuries that pay some interest.
We have long pondered how would the Fed keep interest rates low if it stopped buying 60-90% of the newly issued U.S. Treasuries. Clearly there was no apparent large replacement buyer that could buy U.S. Treasuries in such amounts.
Last month we noted:
The Fed now holds nearly $2.4 trillion T-Bonds, or about two times as many as China! Since the Fed has essentially become the T-Bond market over the past few years via QE, the question remains, who will buy T-Bonds that the Fed will not buy as it ends QE in the amounts necessary to keep interest rates low? As incredulous as it may seem, it appears that tiny Belgium has taken up that monumental task.
The U.S. Treasuries bought by “Belgium” are not being bought by the country itself but rather through Euro clear on behalf of a buyer(s). The Treasury Department lists the bonds as being owned by Belgium.
The Fed’s No Exit Dilemma Solved
Perhaps the Fed can continue its tapering of quantitative easing as it has found, with the (coordinated?) help of the ECB, its buyers to replace it as the primary (front running?) buyer of U.S. Treasuries – European banks fleeing negative ECB interest rates.
European Central Bank Negative Interest Rates Help The Fed Exit QE
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*Excess reserves at European banks are about 45% of all reserves. Most large European banks have U.S. subsidiaries. Read more regarding non-U.S. banks holding U.S. Treasuries. The Fed since 2008 pays interest on excess reserves.
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If the Fed Stops Buying Treasuries, Who will Buy Them?
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