Big Bond Market Whales Could Be Getting Ready for a Buying Frenzy
Who are the biggest whales in the bond market?
If you go around and ask this question, most people would tell you that’s either the Fed or foreign Central Banks like the Bank of Japan or the People’s Bank of China.
That’s wrong.
And the real bond market whales might develop a renewed appetite for bonds in 2024.
The chart above speaks more than 1,000 words: history shows (red boxes) how 70%+ of net buying flows in Treasury markets are attributable to pension funds, asset managers, insurance companies, and foreign investors.
These foreign investors include both institutional players (the very same pension funds, asset managers, etc) and foreign Central Banks.
I estimate that foreign Central Banks account for about 1/3 of the flows in the dark green stack.
That leaves us with ~60% of the buying flows attributable to the real whales: pension funds, asset managers, banks, and insurance companies.
Not the Fed.
The Fed played an outsized role only in 2020-2021, but that’s an exception attributable to the huge pandemic-related QE programmes.
Recently most of the buying flows have been coming from households: 4-5% risk-free rates have become a palatable investment alternative for the first time in decades.
A caveat here as well: this definition of ‘‘households’’ also includes hedge funds, so take it with a pinch of salt.
My point remains: the biggest whales in the bond market are banks, pension funds, asset managers, and insurance companies.
1. Their guaranteed (real) yields are high enough to help them meet their return objectives and simultaneously hedge interest rate risk.
Insurance companies and pension funds run long-duration liabilities like life insurances or pension contributions to be paid in 30-40 years.
It’s good
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