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August 3, 2018

Large players stay away from US stocks, anticipate their fall

Large players stay away from US stocks, anticipate their fall


Market-makers have stocked up with the record-breaking amount of government bonds of the US.

According to the Federal Reserve Bank of New York, by last Tuesday the sum of the accumulated state bonds on balance of 23 main dealers of the American treasury bonds reached 159,6 billion dollars.

Market-makers have never owned such a big amount of debt securities from 2011.


bond holdings by main dealers

The sum of US treasuries on dealers’ balances (billion dollars). Source: FRB of New-York


The situation on the debt market in US is quite sustainable: 10-year state bonds income keeps around 2,8%-3% since February, 2018. Dealers, in turn, start building their positions in American treasury since the end of the February, 2018 and by the beginning of August have filled up the portfolios with securities for 98,5 billion dollars, having increased the investments by 2,5 times.

There are largest banks from Wall Street among the main market makers of the debt market. In recent weeks, they have warned about increasing chance of the capital flight from US stock market.

Recall the Morgan Stanley gloomy projections after failed corporate earnings report from Facebook, Twitter and Intel. Their analysts warned about global transition from growth to value stocks. Perhaps, it’s one of the reasons of increasing investments in the government bonds.

Also because of the resilience of stocks indices glued to record highs majority of investors are reluctant to buy highs. It’s worth reminding that in the last 10 years investors increased share of bonds in their portfolios from 2007 to 2009, in 2011 and 2015, that were precorrectional periods or moments of falling of the markets.

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