Wall Street’s major banks are hoarding Treasuries at a record rate, as a disappointing global economy forces them into the apparent safety of U.S. government debt. Despite the Fed’s extension of the Twist, the 21 primary dealers cut their sales of Treasuries to the central bank, while nearly doubling their holdings, according to data compiled by Bloomberg. The concentration into Treasuries poses a risk, as investor and commentator Peter Schiff put it, given the possibility of massive losses, both for banks and the Fed, once rates begin to rise and everyone scrambles for the exit at the same time.
Primary dealers, the banks which are authorized to act as counterparties of the NY Fed when it’s conducting monetary policy, boosted their holdings of U.S. Treasuries to $109.2 billion in June; they had been net short as recently as September. Furthermore, these bond dealers offered an average $7.2 billion in Treasuries a day to the Federal Reserve in June, down 40.5% from a high of $12.1 billion in October, Bloomberg’s data shows.