After yesterday’s Treasury auction, the US is officially raising free money. So is there free money out there for anyone other than the government? Not really, but PIMCO’s Mohamed El-Erian says his firm has been a buyer of FDIC-backed debt that’s become popular among a range of financial institutions. Both are backed by the full faith and credit of the US, but the FDIC stuff trades at a slight premium.
Still, we’re not totally clear on why that is. One possibility is that this debt is a bit less liquid, which reduces its value in a time when liquidity is prized. It’s also possible that some of the big foreign buyers of US government debt aren’t completely comfortable or positioned to buy this stuff.
If you have any thoughts on these bonds, we would love to hear ’em.