This Is What's Actually Happening When The Government Auctions Bonds
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Market Stability
The bond market's stability hinges on the balance between buyers and sellers, even amidst economic fluctuations. explains that while treasury prices may fluctuate, the underlying flows remain balanced, as every buyer has a corresponding seller 1. He notes that foreign investors, despite potential panic, still aim to profit, making them similar to domestic investors in behavior 2.
If you're a big holder of bonds, you can sell in a panic and you can lose a lot of money. I mean, I work for a firm which was large and if we wanted to, we could lose a lot of money very quickly by selling our assets in a panic.
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This dynamic ensures that the bond market maintains equilibrium, even when external factors cause concern.
Investment Dynamics
The influence of foreign versus domestic investment in bond markets is nuanced. highlights that foreign holders of US treasuries are often compelled to invest in them due to the need for safe, liquid assets, especially when their currencies are under pressure 3. Despite the potential for foreign investors to panic, they share similar motivations with domestic investors, primarily the desire to avoid losses 2.
They keep their money in fixed income assets and they want safe ones. I mean, they don't, because they might need to call on the reserves if their currency is under attack.
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This interplay between foreign and domestic investment contributes to the overall stability of the bond market.