Chuck Butler does a daily newsletter called the Daily Pfennig - the German word for penny - and he talked about a Minsky moment in bonds in yesterday's newsletter.

Hyman Minsky who has passed away was a brilliant economist and he came up with a formula that basically describes how a collapse happens. So Chuck Butler wrote:

"What could cause a Minsky Moment in bonds? Well, think about this for a minute. The U.S. Fed has been a very large bond buyer since the first round of quantitative easing began in 2009. They bought boatloads of both U.S. Treasury bonds and Mortgage-backed bonds. Look at their balance sheet, it increased five-fold to over $4.6 Trillion in 2017."

Now, they bought these bonds in order to throw money into the economy. They pull the bonds out, they throw the cash in. So this is pouring money into the economy. This is called quantitative easing. And they said that there would be a tapering of this in 2015, and there was. They slowed down their purchases but they continued to buy them and then at the end of last year - 2017 - they said in 2018 they were not going to buy any more bonds.

And guess what? It's next year, so the Fed apparently isn't buying bonds. And Chuck Butler says...

"The question was... "Who is going to take the Fed's place"? Well, there has been no one, to date, and the 10-year Treasury yield has risen from 2.05% on Sept. 8, 2017, to 2.65% on Jan. 18, 2018. That's just the beginning, in my opinion! The Fed may not be the only "no show" at the auction window. "

In other words, it might not just be the Fed who's not buying US Treasuries.

-Thom


(What do you think? Tell us here.)