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RV Exchange Special Posting: Explaining this chart and my views around it...

I once used this chart in an RV video but there is a lot to unpack here...

First off, please do try to follow the lines and go from left to right to appreciate the evolution from a domestic-based bond market to a brief period of foreign dominance to a more balanced ownership structure, especially now with the Fed filling in the cracks.

Second, none of this should come as a surprise, but how we got to where we are today in terms of who owns what in the Treasury market was a carefully laid out series of plans and policy changes. Now, I am not implying that they had some master plan with all these new regulations in mind already built out in the 1970s, but part of the move to building the USD global reserve status started here as well its linked back to the petrodollar agreements.

Third, the Fed has scope to buy a lot more Treasuries (and its not as if the US will stop spending soon - the opposite will occur regardless who sits in the White House next year). That said, unless the US signs off on some new currency arrangement (I know I am going to get some push back here - in that - the US might not have a choice - I differ on that) the Fed will not want to end up with close to half the US bond market (unless we are at war).

So this really does suggest... (More)

Post WW2 UST Ownership Structure

I’ve actually had this as a thematic idea and had this pair trade on until somewhat recently: 

Long S&P Global (SPGI) / Short Moodys (MCO)

 Fed moral hazard pair trade
 Fed moral hazard pair trade

Basically working off that same logic. If there’s any biz the Fed is allowing to die / very directly killing, it’s credit ratings agencies- very directly making obsolete on a 1:1 ratio. Rating agency does their analysis and downgrades → no need for their fundamental services any longer as the paper has a safety net. Record IG & crap issuance helps, but again, it’s IG only that’s relevant. But not gonna short, that’s essentially calling the top on debt issuance and I’m not that smart / not that stupid to do that, hence the pair. S&P has its indexing biz as well as credit rating, which is why its the relative long, and also at the center of ESG. 

I had 2:1 long / short ratio and it worked, but then it turned and I got out after giving back half my gains. 
 

Used these as indicators: ANGL (fallen angels bond ETF) / JNK (or HYG), and LQD/HYG

@Edward Harrison1 @Jack Farley1 @Raoul Pal1 

In an era of MMT (via QE) do credit ratings even *matter*?  e.g. Moodys downgrade UK to Aa3 and yields stay near zero.
Ratio trade comps 
Ratio trade comps