If the Fed were to hold course to its stated intentions, its $45 billion monthly purchases of Treasury bonds would be completely wound down by the 4th quarter of 2014. Given that those purchases represented a very large portion of Treasury bond issuance at that time, it was widely assumed by many, me in particular, that the sidelining of such huge demand would push down the price of Treasury bonds. Without the Feds bid, interest rates would have to rise.
But almost five months later, yields on the 10-year Treasury bond are 50 basis points lower than they were at the end of 2013, despite the fact that the Fed has officially trimmed its monthly purchases in half. Apparently, plenty of other buyers were prepared to fill the void. Many have concluded that Uncle Sam doesnt need the Fed after all. But a close look at international activity in the Treasury market reveals some odd patterns that should be explained.