So About China and The Fed Offloading Those T-Bills

The Fed is hitting the hammer on inflation and to get to 2% inflation they are making some big moves.

  • Treasuries at The Fed have reduced from over $6 trillion to $5.6 trillion
  • China dumping US Treasuries (total holdings near ~$1 trillion) to defend Yuan against the US Dollar (current exchange rate 7.3 Yuan per $, an increase of 14% over the beginning of the year)
  • The Bank of Japan is friendly with the US, but as the second highest foreign owner of US Treasuries after China they may have to sell with their own inflation/currency woes.

Jennifer Lamar of Diamond Nest Egg is debating switching from a 13-week to a 17-week ladder buy strategy. She is adamant on not selling her T-Bills before maturity. For a 3-4% interest rate this is a great way to deploy capital short term in a relatively (for the patient) liquid state.

Could the liquidity situation in the Treasury market get worse? Yes. Could it get much worse even? Possibly.

Jennifer Lamar November 2022

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