Title: Bond Buyers Return Amidst Market Volatility, Households Step Up
In a note published on Friday, Goldman Sachs stated that despite the recent sell-off in Treasury bonds causing market anxiety, new buyers are entering the market, contributing to the stabilization of yields.
Households have emerged as active participants, now owning 9% of outstanding US Treasury bonds, a significant increase from the 2% recorded at the beginning of 2022. According to data, households accounted for a remarkable 73% of net Treasury purchases from 2022 through the second quarter of 2023. Their increased involvement has offset declines in bond purchases by the shrinking balance sheet of the Federal Reserve, as well as mutual funds and ETFs.
Goldman Sachs’ David Kostin cites the appealing risk/reward of owning a ‘risk-free’ asset with yields surpassing the economy’s potential growth rate as a contributing factor to the increase in bond buyers. He predicts that Treasury yields will remain contained due to this attractive proposition.
While concerns about demand have been raised due to lackluster Treasury auctions driven by ballooning deficits, Goldman Sachs dismisses the notion of a supply-demand imbalance in the market. Instead, they highlight that high yields could potentially exert downward pressure on equity demand in the future, particularly given the significant share of equity holdings held by households. As a result, Kostin expects moderate selling by households throughout 2024.
Additionally, Goldman Sachs predicts that pensions will sell $250 billion in equities next year after shedding $315 billion in stocks year-to-date. Mutual funds are also expected to sell $250 billion in equities. These sell-offs will counterbalance the stock purchases made by foreign investors, who have been increasingly active in US equity markets. US corporations are anticipated to be the primary source of stock demand in the coming year, expected to make net purchases of $550 billion.
Overall, the developments in the bond market suggest that bond buyers are returning amidst market volatility. The increased participation of households and their continued demand for Treasury bonds serve to stabilize yields. However, the high yields may exert pressure on equity demand moving forward, leading to potential selling by households and other investors.
Note: The article has been rewritten by Pierre Herubel to ensure a high proficiency in English and to achieve optimal SEO performance.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years.