Sale of U.S. Treasuries Risk to FFH

[Parsad]

I'm sure Brian has thought about it already, but if much of the globe decides to sell US treasuries as a retaliatory tactic to tariffs and aggression, what could be the risks to FFH's large USD bond position?

 

My thinking is that they would move more cash and other bonds to USD treasuries as rates rise, offsetting the losses on existing USD bonds.  Would increase the average yield...average out the risk...and they could hold them until maturity to offset any potential paper losses.

 

Cheers!

[Hoodlum]

41 minutes ago, Parsad said:

I'm sure Brian has thought about it already, but if much of the globe decides to sell US treasuries as a retaliatory tactic to tariffs and aggression, what could be the risks to FFH's large USD bond position?

 

My thinking is that they would move more cash and other bonds to USD treasuries as rates rise, offsetting the losses on existing USD bonds.  Would increase the average yield...average out the risk...and they could hold them until maturity to offset any potential paper losses.

 

Cheers!

 

I don't know if they would change much from what they are already doing today, as average duration has decreased over the past year.  The only outlier are the 30 year treasuries of which they sold half of earlier last year.  I was actually going to check the 2025 results next month to see if they sold the remaining 30 year treasuries in late October when the market yield was 25-30 points lower than it is today.  That would likely push Fairfax's average duration down to 2 years or slightly under.  Treasury risk to Fairfax would be greatly reduced at that point.

Edited January 19 by Hoodlum

[Parsad]

41 minutes ago, Hoodlum said:

 

I don't know if they would change much from what they are already doing today, as average duration has decreased over the past year.  The only outlier are the 30 year treasuries of which they sold half of earlier last year.  I was actually going to check the 2025 results next month to see if they sold the remaining 30 year treasuries in late October when the market yield was 25-30 points lower than it is today.  That would likely push Fairfax's average duration down to 2 years or slightly under.  Treasury risk to Fairfax would be greatly reduced at that point.

 

Hopefully they did.  Brian's pretty damn good about these things!  Cheers!

[SafetyinNumbers]

I think it they are better set up for it than most. Losses on bonds will be relatively low and short lived given the short duration. It might mean the market hardens a bit so premium growth could also pick up. Long term a positive for ROE for sure. 

[Viking]

A few months ago people were worried about treasury yields going way down and interest income imploding…. Now the risk is treasury yields going way higher and interest income spiking? Which is it?

Edited January 20 by Viking

[SafetyinNumbers]

27 minutes ago, Viking said:

A few months ago people were worried about treasury yields going way down and interest income imploding…. Now the risk is treasury yields going way higher and interest income spiking? Which is it?

It’s hard not to like Fairfax under almost any macro set up. They are pretty creative when it comes to making money.  

[gfp]

4 hours ago, Parsad said:

if much of the globe decides to sell US treasuries as a retaliatory tactic to tariffs and aggression

 

And what do you envision "much of the globe" doing with their USD proceeds from selling their treasury securities?

 

[Gregmal]

Yea the “US losing reserve currency status” thesis is….purely TDS speaking. Fairfax will be fine. Have heard Prem is a closet Trump supporter too!

Edited January 20 by Gregmal

[Junior R]

sales of treasuries is a good thing could be another couple years of good income from bonds 

[Txvestor]

4 hours ago, Viking said:

A few months ago people were worried about treasury yields going way down and interest income imploding…. Now the risk is treasury yields going way higher and interest income spiking? Which is it?

I still think the risk is to a downside in rates, even if involving Fed bond buying and rate suppression to below the inflation rate. The US debt is unsustainable and the plan would be to do a soft default. 

[Parsad]

3 hours ago, gfp said:

 

And what do you envision "much of the globe" doing with their USD proceeds from selling their treasury securities?

 

 

Gold, Pound, Euro...they don't have to sell all of the USD treasuries...just a significant amount and that will move rates, since the US has to issue a ton of debt every year.  Just a couple of percent...and we saw more than that in the last few years...could have a serious impact on the US and global economy.  Cheers!

[Parsad]

3 hours ago, Gregmal said:

Yea the “US losing reserve currency status” thesis is….purely TDS speaking. Fairfax will be fine. Have heard Prem is a closet Trump supporter too!

 

You don't have to lose it...just the world doubting it will have repercussions!  Cheers!

[Parsad]

4 hours ago, SafetyinNumbers said:

It’s hard not to like Fairfax under almost any macro set up. They are pretty creative when it comes to making money.  

 

They are smarter than most...certainly me!  But outlier events are exactly that...unexpected.  Their short position worked against them a decade ago...even the best can be wrong some times.  Not saying they are...just saying what could be the repercussions of their bond portfolio as structured?  Cheers!

[UK]

Volatility in bonds for FFH, is that a risk or an opportunity?

 

Some will say this is an overreaction and I hope they will be right, but I will still say this: I am starting to get much more worried what could happen to FFH, if anything, if Trump, God forbid, will go afer Canada.

 

Edited January 20 by UK

[Parsad]

1 minute ago, UK said:

Volatility in bonds for FFH, is that a risk or opportunity?

 

Some will say this is an overreaction and I hope they will be right, but I will still say this: I am starting to get much more worried what could happen to FFH, if anything, if Trump, God forbid, will go afer Canada.

 

Much of their assets are in USD and their businesses are global in various currencies...so I think that may be less of a risk than anything that affects the US.  Cheers!

[73 Reds]

11 hours ago, Viking said:

A few months ago people were worried about treasury yields going way down and interest income imploding…. Now the risk is treasury yields going way higher and interest income spiking? Which is it?

The same people always worry about something.  The rest of us make money no matter what.

[SafetyinNumbers]

6 hours ago, Parsad said:

 

They are smarter than most...certainly me!  But outlier events are exactly that...unexpected.  Their short position worked against them a decade ago...even the best can be wrong some times.  Not saying they are...just saying what could be the repercussions of their bond portfolio as structured?  Cheers!

I’m focused on the current set up. Not the past. 

[Hektor]

12 hours ago, Viking said:

A few months ago people were worried about treasury yields going way down and interest income imploding…. Now the risk is treasury yields going way higher and interest income spiking? Which is it?

[Hektor]

10 hours ago, gfp said:

 

And what do you envision "much of the globe" doing with their USD proceeds from selling their treasury securities?

 

+1. The present concerns about the risk of treasury sales sounds similar to the concerns from the distant past about the Chinese selling off US debt!

[Hektor]

6 hours ago, UK said:

I am starting to get much more worried what could happen to FFH, if anything, if Trump, God forbid, will go afer Canada.

FFH stock might sell off (buying opportunity?), however, the impact on their diversified business might not be of concern.

[Hektor]

6 hours ago, Parsad said:

 

Much of their assets are in USD and their businesses are global in various currencies...so I think that may be less of a risk than anything that affects the US.  Cheers!

+1

[Gregmal]

Yea I mean anything is possible given some dipshits still seem to fall for anything…but in terms of anything material this is basically a nil risk for FFH. I mean we aren’t even back at the mysteriously “magical” 4.50 level on the 10 year and they’re underway with their cooing and cawing 

[gfp]

16 minutes ago, Gregmal said:

Yea I mean anything is possible given some dipshits still seem to fall for anything…but in terms of anything material this is basically a nil risk for FFH. I mean we aren’t even back at the mysteriously “magical” 4.50 level on the 10 year and they’re underway with their cooing and cawing 

 

We might not even hit 4.4% this time.  My own mother just called worried about something she read on facebook about this "foreigners selling the dollar" stuff.  She said "it said inflation will be so high even millionaires will be poor!"

 

Okey-dokey whatever you guys say.  This site is turning into my Mom's facebook feed!

[Gregmal]

6 minutes ago, gfp said:

 

We might not even hit 4.4% this time.  My own mother just called worried about something she read on facebook about this "foreigners selling the dollar" stuff.  She said "it said inflation will be so high even millionaires will be poor!"

 

Okey-dokey whatever you guys say.  This site is turning into my Mom's facebook feed!

lol so true. 

[wabuffo]

Remember the rule:

“Always harvest geopolitical risk premiums”