Breaking News
Get 40% Off 0
🔎 See NVDA's full ProTips for an instant risks or rewards Claim 40% OFF

Big Bond Market Whales Could Be Getting Ready for a Buying Frenzy

By Alfonso PeccatielloMarket OverviewDec 04, 2023 03:11AM ET
Big Bond Market Whales Could Be Getting Ready for a Buying Frenzy
By Alfonso Peccatiello   |  Dec 04, 2023 03:11AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Who are the biggest whales in the bond market?

If you go around and ask this question, most people would tell you that’s either the Fed or foreign Central Banks like the Bank of Japan or the People’s Bank of China.

That’s wrong.

And the real bond market whales might develop a renewed appetite for bonds in 2024.

Decomposition of Treasury Bond Net Buying
Decomposition of Treasury Bond Net Buying

The chart above speaks more than 1,000 words: history shows (red boxes) how 70%+ of net buying flows in Treasury markets are attributable to pension funds, asset managers, insurance companies, and foreign investors.

These foreign investors include both institutional players (the very same pension funds, asset managers, etc) and foreign Central Banks.

I estimate that foreign Central Banks account for about 1/3 of the flows in the dark green stack.

That leaves us with ~60% of the buying flows attributable to the real whales: pension funds, asset managers, banks, and insurance companies.

Not the Fed.

The Fed played an outsized role only in 2020-2021, but that’s an exception attributable to the huge pandemic-related QE programmes.

Recently most of the buying flows have been coming from households: 4-5% risk-free rates have become a palatable investment alternative for the first time in decades.

A caveat here as well: this definition of ‘‘households’’ also includes hedge funds, so take it with a pinch of salt.

My point remains: the biggest whales in the bond market are banks, pension funds, asset managers, and insurance companies.

The big question is: why do they buy bonds in the first place?

1. Their guaranteed (real) yields are high enough to help them meet their return objectives and simultaneously hedge interest rate risk.

US BBB 30-Year Corporate Bond Yields
US BBB 30-Year Corporate Bond Yields

Insurance companies and pension funds run long-duration liabilities like life insurances or pension contributions to be paid in 30-40 years.

It’s good practice to immunize the interest rate risk from these long liabilities with long-duration assets: 30-year bonds, for example.

On top of it, these industries have to achieve long-term return targets of (at least) 6-7% to remain viable over the long term.

Today they can pretty much achieve both objectives by buying 30-year BBB corporate bonds: that’s a very solid proposition for these whales.

2. Bonds (can) act as a portfolio stabilizer when risk assets take a hit

Stock-Bond Correlation
Stock-Bond Correlation

This chart from the excellent Dan Rasmussen of Verdad Capital is key.

Going back almost 200 years, it’s quite evident that the stock/bond correlation isn’t negative all the time: it’s often positive (!) especially if core inflation is above 3% and particularly volatile (2022 anybody?).

That makes sense: if core inflation is high and unpredictable, Central Banks will go a long way to tighten aggressively and get things under control again.

Central Bankers rule #1 is to preserve credibility and therefore be able to retain control of the game.

As they tighten aggressively, bond markets will sell off and equity valuations will simultaneously take a hit: positive correlation, and poor stock/bond returns.

Instead, bonds retain their amazing negative correlation to stocks only if core inflation falls predictably below 3% (green area).

And that makes sense too: once core inflation is within the Central Bank's comfort zone, the big drawdown in equities or credit markets will be seen as destabilizing for the economy, and Central Banks will attach more value to their growth/labor market side of the mandate and come to the rescue.

If things get bad, bond markets will rally in anticipation of Central Bank easing: this is the negative stock/bond correlation institutional investors love so much.


Today core inflation is at 4% with the 6-month underlying trend hitting 3% already.

History shows that below 3% the sought-after negative correlation between stocks and bonds might unfold once again.

If that happens, bonds will be a very palatable asset for hungry whale buyers.

The combination of a long-duration asset that immunizes interest rate risk, delivers a high yield and protects portfolios in an equity drawdown is an irresistible proposition for this big bond market whales.

These whales have been dormant, but their footprint can be enormous and much bigger than the Fed.

Beware the stock/bond market correlation and the bond market whales.

Disclaimer: This article was originally published on The Macro Compass. Come join this vibrant community of macro investors, asset allocators and hedge funds - check out which subscription tier suits you the most using this link.

Big Bond Market Whales Could Be Getting Ready for a Buying Frenzy

Related Articles

Big Bond Market Whales Could Be Getting Ready for a Buying Frenzy

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email