Sale of U.S. Treasuries Risk to FFH

[Crip1]

16 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?

Well, it’s both! Personally, it’s not really fear, or a prediction…it’s curiosity. 

 

Like many others, my crystal ball does not function terribly well. The notion of “What happens to my biggest investment if…” makes sense to me, and applies to multiple scenarios. When inflation was highly feared last April after the big tariff announcements, it made sense wonder “What happens if we see an inflation spike?”. With the Fed in a cutting cycle, it makes sense to wonder “What happens if long to intermediate term rates decline?”. For me, at least, none of these situations cause me to think the sky is falling, but it helps to consider what any of the macroeconomic factors can do to my biggest investment. And this board provides a hell of a lot more insight than I can on my own.

 

-Crip
 

[dartmonkey]

25 minutes ago, Crip1 said:

With the Fed in a cutting cycle, it makes sense to wonder “What happens if long to intermediate term rates decline?”

I don't know that we can take much comfort from this, but the Fed being in a cutting cycle or a tightening cycle makes little to no difference to what long-term rates will be. Those are set by market forces, not the Fed. Here's what Grok has to say (and I agree with it):

 

"yields on 10-year or 30-year government bonds like U.S. Treasuries, which serve as benchmarks for mortgages, corporate bonds, and other borrowing costs) are shaped by market forces rather than direct central bank control (unlike short-term rates set by policy tools like the federal funds rate or ECB deposit facility rate).

 

Ultimately, long-term rates are going to be what the market expects interest rates to be in the long term, and so if the Fed cuts rates a lot this year and sets off a bout of inflation, and rates have to rise afterwards, we should expect that long-term rates will not be impressed by those Fed cuts. 

[Viking]

52 minutes ago, Crip1 said:

Well, it’s both! Personally, it’s not really fear, or a prediction…it’s curiosity. 

 

Like many others, my crystal ball does not function terribly well. The notion of “What happens to my biggest investment if…” makes sense to me, and applies to multiple scenarios. When inflation was highly feared last April after the big tariff announcements, it made sense wonder “What happens if we see an inflation spike?”. With the Fed in a cutting cycle, it makes sense to wonder “What happens if long to intermediate term rates decline?”. For me, at least, none of these situations cause me to think the sky is falling, but it helps to consider what any of the macroeconomic factors can do to my biggest investment. And this board provides a hell of a lot more insight than I can on my own.

 

-Crip

 

@Crip1, well said. Here are a couple of the learnings for me:

• Fairfax is very good at managing their fixed income portfolio. They have a very good long term track record. (It has been a big part of being able to compound at 19% for 40 years.) "In Brian (and team) we trust."
• Volatility is their friend. The more the better. 

It is counterintuitive. Volatility hits and investors want to run for the hills. It should be the opposite (when it comes to Fairfax).

[Haryana]

12 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!

Their well timed ventures in quality mining corps could provide a counterweight. 

[Munger_Disciple]

Foreigners in aggregate, cannot reduce their dollar based holdings. So this thing about foreigners selling dollars doesn't make sense to me. 

[gfp]

2 minutes ago, Munger_Disciple said:

Foreigners in aggregate, cannot reduce their dollar based holdings. So this thing about foreigners selling dollars doesn't make sense to me. 

 

Don't worry, they are all going to buy F150s so we get the dollars back and they get the trucks

[Munger_Disciple]

4 minutes ago, gfp said:

 

Don't worry, they are all going to buy F150s so we get the dollars back and they get the trucks

 

That's a good point. I suppose the only way for foreigners to reduce their dollar based holdings is for the US to run a trade surplus, which is highly unlikely. 

[gfp]

16 minutes ago, Munger_Disciple said:

 

That's a good point. I suppose the only way for foreigners to reduce their dollar based holdings is for the US to run a trade surplus, which is highly unlikely. 

 

Not if you're listening to this trump presser live right now!  Sounds like a done deal 

[TwoCitiesCapital]

32 minutes ago, Munger_Disciple said:

 

That's a good point. I suppose the only way for foreigners to reduce their dollar based holdings is for the US to run a trade surplus, which is highly unlikely. 

 

In aggregate - this is the case. But at any given time, anyone holding USD can sell into the FX markets, buy gold, buy oil, etc to get rid of the USD. 

 

Someone is left holding the bag of USD, but doesn't mean there can't be selling pressure and price impacts as people sell to others willing to hold the bag....

 

You don't have to worry about a USD collapse before we see the collapse of other fiat currencies - but doesn't mean it can't depreciate against real assets like what we see with Gold and Bitcoin (on a longer term scale). 

Edited January 20 by TwoCitiesCapital

[Munger_Disciple]

13 minutes ago, TwoCitiesCapital said:

 

In aggregate - this is the case. But at any given time, anyone holding USD can sell into the FX markets, buy gold, buy oil, etc to get rid of the USD. 

 

Someone is left holding the bag of USD, but doesn't mean there can't be selling pressure and price impacts as people sell to others willing to hold the bag....

 

You don't have to worry about a USD collapse before we see the collapse of other fiat currencies - but doesn't mean it can't depreciate against real assets like what we see with Gold and Bitcoin (on a longer term scale). 

 

Sure, dollar can & does depreciate against other assets like real estate, gold, stocks etc. especially over the long course. Anyone with real assets or businesses knows that. That's kind of built into the system & a different issue from the discussion about dollar selling by foreigners as a whole. 

[Txvestor]

2 hours ago, dartmonkey said:

I don't know that we can take much comfort from this, but the Fed being in a cutting cycle or a tightening cycle makes little to no difference to what long-term rates will be. Those are set by market forces, not the Fed. Here's what Grok has to say (and I agree with it):

 

"yields on 10-year or 30-year government bonds like U.S. Treasuries, which serve as benchmarks for mortgages, corporate bonds, and other borrowing costs) are shaped by market forces rather than direct central bank control (unlike short-term rates set by policy tools like the federal funds rate or ECB deposit facility rate).

 

Ultimately, long-term rates are going to be what the market expects interest rates to be in the long term, and so if the Fed cuts rates a lot this year and sets off a bout of inflation, and rates have to rise afterwards, we should expect that long-term rates will not be impressed by those Fed cuts. 

Not if Fed starts buying the long dated treasuries as they would no doubt use any sniff of an emergency to do! The BOE did it when gilts reacted badly to PM Truss' tax cutting proposal  a couple of years ago. 

[SafetyinNumbers]

15 minutes ago, Txvestor said:

Not if Fed starts buying the long dated treasuries as they would no doubt use any sniff of an emergency to do! The BOE did it when gilts reacted badly to PM Truss' tax cutting proposal  a couple of years ago. 

Bessent is a hedge fund manager. They borrow at the short end while buying long dated treasuries when they get high enough. It’s a pretty nice spread trade when they control the short end. It almost seems things like Greenland are designed to force this outcome. 

[Parsad]

12 hours 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!

 

I think that's excessive...and a bit naive. 

 

I remember just before 2008, I spoke to Sardar and Cooley in Omaha about the risk of money market funds possibly breaking the dollar barrier in a crisis...they both disagreed with me.  Sardar pulled some numbers out of his head and said that it wasn't possible...Cooley like a proud father agreed and supported Sardar's numbers.  Well guess what?  The next year money market funds were returning less than a dollar for every dollar invested! 

 

The likelihood of outlier events happening is remote...but they do happen.  Discussing them isn't panic, nor is it a group of unsophisticated investors prognosticating or relying on Facebook posts.  Cheers! 

[Parsad]

5 hours ago, Txvestor said:

Not if Fed starts buying the long dated treasuries as they would no doubt use any sniff of an emergency to do! The BOE did it when gilts reacted badly to PM Truss' tax cutting proposal  a couple of years ago. 

 

Yeah, I think that would be what would have to happen...it happened during the GFC as well. 

 

FFH can hold the short-term stuff until maturity as Prem has often said.  It's the $14B in longer dated stuff that I wonder about...about half that are the mortgage bonds through KW...the other half is a mix of longer-dated US bonds and corporate bonds.

 

Cheers!

[Txvestor]

17 minutes ago, Parsad said:

 

Yeah, I think that would be what would have to happen...it happened during the GFC as well. 

 

FFH can hold the short-term stuff until maturity as Prem has often said.  It's the $14B in longer dated stuff that I wonder about...about half that are the mortgage bonds through KW...the other half is a mix of longer-dated US bonds and corporate bonds.

 

Cheers!

Sadly the bar for doing this type of thing has been lowered more and more post GFC and with the current president and the soon to be appointed new Fed chief at the helm, that sort of perverse level of market interference is likely to become more of a regular event.
As we saw during Covid, some market participants like Fairfax and Berkshire were armed with boatloads of cash, but the calls never came because the Feds liquidity firehose was opened at full capacity in an instant. 
We are unfortunately not living in times of totally free markets anymore. 

Edited January 21 by Txvestor

[wabuffo]

...because the Feds liquidity firehose was opened at full capacity in an instant. 

 

So the Fed removes an asset that everyone can hold (Treasury security) and replaces it with an asset that only banks can hold (reserve balance) & that is stuck at the Fed.  Doesn't seem like a liquidity firehose to me.  Quite the opposite.

 

I think you're looking in the wrong place.

 

Bill 

 

 

[UK]

10 hours ago, Munger_Disciple said:

 

That's a good point. I suppose the only way for foreigners to reduce their dollar based holdings is for the US to run a trade surplus, which is highly unlikely. 

 

Two last cars I bought where manufactured in US (I think except for their engines), so I think I have done my share:))

 

Edited January 21 by UK

[Txvestor]

2 hours ago, wabuffo said:

...because the Feds liquidity firehose was opened at full capacity in an instant. 

 

So the Fed removes an asset that everyone can hold (Treasury security) and replaces it with an asset that only banks can hold (reserve balance) & that is stuck at the Fed.  Doesn't seem like a liquidity firehose to me.  Quite the opposite.

 

I think you're looking in the wrong place.

 

Bill 

 

 

During Covid  the bond buying created reserves permanently (or semi‑permanently), while repos and swap lines provided shorter‑term, elastic liquidity to market participants. They're capable of doing both if they want. 

[wabuffo]

During Covid  the bond buying created reserves permanently (or semi‑permanently), while repos

 

The reserves are stuck at the Fed, and beyond a point, are not needed or wanted by the banks -- so much so that the Fed was forced into reverse repo to take them back starting in early 2021.

 

Asset swaps, particularly for reserves, are not liquidity-providing.  They don't increase private sector net assets.

 

If your bank swaps your $100 time deposit for a $100 demand deposit - do you have more money?  Basically that is what the Fed is doing with the private sector when it does QE.

 

A central bank can't hit two targets with one policy arrow.  It tries to control the price of money, but can't control the quantity of money.

 

So it is forced into trying to lower rates - an activity that I'm not even sure that is stimulative (though that's a totally different point)

 

Liquidity was provided during GFC & Covid but not by the Federal Reserve. Because it was provided by another sovereign actor at the same time - folks wrongly ascribe it to central bank actions.  As I said, you are pointing to the wrong actor.

 

Bill

Edited January 21 by wabuffo

[hasilp89]

2 hours ago, wabuffo said:

Liquidity was provided during GFC & Covid but not by the Federal Reserve. Because it was provided by another sovereign actor at the same time - folks wrongly ascribe it to central bank actions.  As I said, you are pointing to the wrong actor.

deficit spending by the government?

[wabuffo]

deficit spending by the government?

[Spooky]

23 hours ago, dartmonkey said:

I don't know that we can take much comfort from this, but the Fed being in a cutting cycle or a tightening cycle makes little to no difference to what long-term rates will be. Those are set by market forces, not the Fed. Here's what Grok has to say (and I agree with it):

 

"yields on 10-year or 30-year government bonds like U.S. Treasuries, which serve as benchmarks for mortgages, corporate bonds, and other borrowing costs) are shaped by market forces rather than direct central bank control (unlike short-term rates set by policy tools like the federal funds rate or ECB deposit facility rate).

 

Ultimately, long-term rates are going to be what the market expects interest rates to be in the long term, and so if the Fed cuts rates a lot this year and sets off a bout of inflation, and rates have to rise afterwards, we should expect that long-term rates will not be impressed by those Fed cuts. 

 

I don't believe this is true in the US but I'm not as good at this stuff as gfp or wabuffo. 

[Spooky]

Agree that there isn't an alternative to the USD as the reserve currency. Europe won't be able to sell all their US treasuries / stocks anyway since most are all held by a diverse set of private actors. Dumping these assets will also just hurt them as well.

[gfp]

Meanwhile the lowly USD continues to rally against JPY and Korean Won.  Dollar shortage in Asia?

[KJP]

On 1/20/2026 at 2:21 PM, Munger_Disciple said:

Foreigners in aggregate, cannot reduce their dollar based holdings. So this thing about foreigners selling dollars doesn't make sense to me. 

 

Can they do it by swapping dollar-based holdings for the non-dollar based holdings of US persons, e.g., a UK holder of U.S. treasuries swaps assets with a U.S. holder of gilts?  That would reduce the gross amount of foreign dollar-based holdings.