An analysis by a primary dealer in the U.S. Treasuries market shows that domestic banks could account for a large increase in direct bidders for government debt.
The presence of direct bidders, one of three main categories of participants at Treasury auctions, has increased during recent auctions of securities.
Primary dealers, the banks and investment firms authorized to deal directly with the government and help the Federal Reserve carry out monetary policy, have fretted over the unpredictability of the direct bid, as well as the paucity of information on the identity of the bidders.
A report from Nomura Securities analyzing the Treasury Department's investor allotments and auction data theorizes that domestic banks account for part of the increase in direct bidders.
"With banks still reluctant to lend and the saving rate on the rise, bank assets have been shifting from loans to securities, benefiting from the steep curve," wrote George Goncalves, a fixed income strategist at Nomura.
Treasury data shows banks increased their purchases of longer-dated Treasuries just as the percentage of direct bidders began to increase.
The department, which is aware of the identities of bidders but does not disseminate the information, welcomes the added participation in auctions as the government continues to issue new debt at a breakneck pace.
"At the March 10-year (note) auction, banks purchased $2.6 billion 10s (the highest on record)," Goncalves wrote. "Meanwhile banks purchased over $3 billion in (30-year bonds) in March too. This is noteworthy as in the past banks rarely went beyond the five-year point in this sort of size."
Nomura's analysis follows a hypothesis by Barclays Capital earlier this year that an increase in the direct bid was driven mainly by domestic money managers and mutual funds attempting to keep their purchases secret from the rest of Wall Street.
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