Global Rates collapse – Who(s) is behind this?


By Chris Hamilton

As yields collapse globally, equity markets hit cycle or record highs, and real estate again is stretching for new records…What gives on the dislocation of bonds vs. risk?

A quick tour of central bank actions gives some very nice clues…

BTW – if the below acronyms confuse, complicate, and obscure the programs intent…that is by design.

European Central Bank (ECB)

Not a big shocker that every entity available for the initial LTRO front ran the program, which offered to refinance debt @ 1%, when sovereign 10 year yields were peaking at 7% to 25%.  This was a riskless 600 to 2400 basis point spread.

Now, the front running is in top gear.  Every entity in line for the TLTRO is buying every PIIGS bonds yielding 2.5% to 7% on a 10yr.  The ECB will re-finance them via TLTRO @ .50% and no interest payments along the way.  Still a riskless 200 to 650 basis point spread.  And EU players know ECB QE is “odds-on” just a matter of time before rather than refinancing operations, these “assets” are purchased from the holders instead of refinanced, juicing the money supply.

  • TLTRO (targeted long term refinancing operation)  maturing 2018
    • Available European Union entities offered to refinance existing debt @ 0.5% plus no interest is paid during the loan.  Accrued interest is paid in arrears when the borrowing is repaid.
      • This is meant to replace LTRO which offered refinancing @ 1%
      • OMT (outright monetary transactions)
        • Direct ECB buying (via ESM/EFSF*, $750 Billion of broke EU nations committing to bail out other broke EU nations) of sovereign debt upon said nation requesting and meeting “conditionalities”
          • “Sterilization by any means necessary” to remove the new money created by purchasing the bonds (via repo’s).
            • However, in reality – this is considered Germany backing every EU member’s debt and thus all EU nations will continue to converge on a single German rate, currently at 1.4% 10yr Bund.
            • NIRP (negative interest rate policy)
              • -.10% on deposits
              • QE (Quantitative Easing)
                • – Not yet…but probably just a matter of time until ECB directly purchases assets without the “sterilization” (aka, monetizing).

*European Stability Mechanism / European Financial Stability Fund (details @ link)

Bank of Japan (BOJ)

20 years of QE and Japan is the world record debtor.  The BOJ is committed to doubling money supply in short order to aggressively buy their own debt.  ECB has also likely been buying other assets (equities, RE, etc.) to reduce supply and boost asset values.  Abe-nomics is just the most recent in a long line of Bank of Japan interventions and is far too advanced in its programs failures to even attempt to catalogue.

Federal Reserve (Fed)

The US has QE (quantitative easing) programs buying Treasury Notes and Bonds plus Asset Backed Securities (securitized mortgages) and ZIRP (zero interest rate policy…offering savers next to nothing) and a plethora of other programs.

Given the activist programs of the ECB and BOJ to drive sovereign interest rates down and make credit cheaper, it should be clear that the Federal Reserve is in a race to the bottom.

So, it’s one thing to make a claim one believes the Federal Reserve and/or agents acting in its direction (or in collusion) are buying some portion of the Treasury debt overseas alongside its acknowledged QE program.  It’s another to show means, motive, and opportunity for this “shadow QE”.

  • Means…Federal Reserve has unlimited actions it can take including the ability to swap currency at its discretion and likely in non-disclosed actions.  Rising interest rates would likely be considered a “national security” risk, given the potential for serious national dislocation if cost of financing rose and the value of assets fell.


  • Motive…Low and lower rate are needed on record amounts of debt to avoid interest payment shock and aid ongoing credit creation for the interest rate sensitive Real Estate (RE), Commercial RE, and financing markets in general.


  • Opportunity…The Treasury International Capital (TIC) report states that it doesn’t know who buys this stuff or where the money ultimately comes from.  TIC only knows where the purchase takes place…To wit, “The data are collected primarily from U.S.-based custodians. Since U.S. securities held in overseas custody accounts may not be attributed to the actual owners, the data may not provide a precise accounting of individual country ownership of Treasury securities (see TIC FAQ #7 at:  Also note that there isn’t likely any black letter law against Federal Reserve, or its agents, or certainly not those entering into currency swaps with the Fed buying overseas.  Although this program may not be acknowledged, it may also not be “illegal”.

The below 8 banking center nations have increased their Treasury debt ownership since ’07 by $1.2 Trillion…nearly equivalent to the $1.4 Trillion of combined China / Japan in the same period although these 8 nations trade surplus with the US was only a fraction of China / Japan…and I don’t believe Basel III requirements could explain the massive increases.

GLOBAL BANKING CENTERS (treasury holdings)

  • —————->  ’00     ———->  ’07 —–> Mar ’14
  • TOTAL —-> $210 Billion —-> $376 B -> $1.55 Trillion (400% increase) –> Creditor Rank
  • Belgium —–>$28 Billion —-> $13 B —> $381 B ———————————–>(#3)
  • “Caribbean banking centers”
  • —————-> $35 Billion —-> $68 B —> $312 B ———————————–>(#4)
  • UK ————> $50 Billion –> $100 B —> $176 B ———————————–>(#8)
  • Switzerland -> $18 Billion—> $34 B —-> $176 B ———————————–>(#9)
  • HK ————> $39 Billion —-> $52 B —-> $156 B ———————————->(#10)
  • Luxembourg -> $5 Billion —-> $60 B —-> $145 B———————————->(#11)
  • Ireland ——–> $5 Billion —–> $19 B —> $113 B ———————————->(#12)
  • Singapore —> $30 Billion —-> $30 B —–> $91 B ———————————->(#14)


If some portion of this is the Federal Reserve (implicitly or explicitly), here are just a few of the implications to consider:

Federal Reserve’s balance sheet is larger than the stated $4 Trillion and perhaps double the stated $2 T in Treasury holdings?  Could the Federal Reserve also be using overseas purchases to avoid the 70% ownership caps on any single Treasury…allowing for unlimited buying in the comparatively smaller markets at the long end of the curve?

Conclusion – Seems time has come to investigate if this shadow QE is possible (?), plausible (?), in action (?), and if true consider the implications of continuing and/or ceasing this?  Wonder if there’s one brave soul among any of those “US based custodians” reporting the data that have any way to peak around the corner, follow the money, and settle this???

Thanks for reading and glad to hear your thoughts, comments, and insights.


2 Responses to Global Rates collapse – Who(s) is behind this?

  1. Chris on June 12, 2014 at 6:18 am

    I thought this article is a nice compliment to the above hypothesis…

    The articles title “Fed prepares to maintain record balance sheet for years”

    The Federal Reserve is now contradicting it’s earlier statements regarding the simplicity of an “exit”. They are now openly stating there is no exit, no buyer, no demand for the Treasury’s and Mortgage Backed Securities – at least not at these yields / prices.

    Link =

    Piece by piece the truth is revealed, but only after the damage is already transferred from perpetrators to victims. More clearly, that $4.3 Trillion of newly created tax payer money used to purchase the assets by the Federal Reserve – well, there is no acceptable market value (or demand) for these…ultimately they will be passed back to the Treasury where the tax payer will, in time, realize the losses.

    So, given this, ponder how likely it is that the Federal Reserve isn’t involved in propping up prices as needed through the fairly simple conduit of “foreign” buying, particularly when all evidence and logic points to it?

  2. Thomas Sullivan on June 24, 2014 at 10:38 pm

    Why do we have to guess about whether the Fed is engaged in massive, secret debt-buying? Unless our rulers step up and prove the truth, I’d assume the worst.

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