Somebody dumped $100 billion in treasuries recently, the largest amount of selling ever recorded. Treasuries are our “IOU’s”, and how other countries store their dollar reserves. As the chart below shows, something big is happening. And let’s not forget, the bond market is 10x larger than the stock market.
All China or Russia have to do is start dumping treasuries, start dumping our debt, and it will rock our economy. Interest rates will skyrocket, and the Fed will have to start monetizing ALL our debt (if there aren’t any buyers of treasuries). The balance sheet at the Federal reserve is already more than $4 trillion, with actual assets at less than 2% of their balance sheet. If interest rates start to rise, the Federal Reserve will quickly become insolvent as their treasuries will be worth less. Nothing would blow up our economy worse than our debt holders dumping our debt, which seems to be exactly what is happening. And if it accelerates, as treasury holders “race for the exits” and try to dump treasuries as rates start to rise, things could get VERY ugly VERY quickly. Don’t expect to hear about this on the financial MSM. Our master’s don’t want people running for the exits.
Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week
Submitted by Tyler Durden on 03/14/2014 09:51 -0400
A month ago we reported that according to much delayed TIC data, China had just dumped the second-largest amount of US Treasurys in history. The problem, of course, with this data is that it is stale and very backward looking. For a much better, and up to date, indicator of what foreigners are doing with US Treasurys in near real time, the bond watchers keep track of a less known data series, called “Treasury Securities Held in Custody for Foreign Official and International Accounts” which as the name implies shows what foreigners are doing with their Treasury securities held in custody by the Fed on a weekly basis. So here it goes: in the just reported latest data, for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.
This brings the total Treasury holdings in custody at the Fed to levels not seen since December 2012, a period during which the Fed alone has monetized well over $1 trillion in US paper.
So is this the proverbial beginning of foreign dumping of US paper? Could Russia simply have designated a different custodian of its holdings? No, because as of most recently it owned $139 billion in US paper, or well above the number “sold” and a custodial reallocation would mean all holdings are moved, not just a portion. For another view, here is what the bond experts at Stone McCarthy had to say:
We don’t have a ready explanation for the plunge in custody account holdings. One thing that is striking about the drop is that the last several days was not a period of heavy market buzz about “central bank selling” of Treasuries, at least to the best of our knowledge. China and Japan are by far the largest holders of Treasuries, with holdings of $1.269 trillion and $1.183 trillion in holdings at the end of December, respectively. China’s holdings are more skewed to central bank holdings. Selling of Treasuries would appear to be at odds with China’s recent effort to depreciate its currency, although on March 5 and 6 there was a brief correction in that trend.
As for the timing:
… the Wednesday-to-Wednesday decline was much larger than the weekly average decline in Treasury holdings of $46.6 billion. That implies that the plunge in Treasuries occurred later in week rather than earlier.
Some further thoughts from SocGen:
Weekly data from the Fed for US Treasury securities held in custody on behalf of foreign institutions and central banks fell sharply over the past week and may offer a plausible explanation as to why the USD has been offered pretty much all week against its major counterparts. EUR/USD in particular has stayed strongly bid since last week’s council meeting (to the bemusement of the ECB) and touched a high of 1.3967 yesterday before easing back after the exchange rate comments from president Draghi. The reduced appetite for USTs and strong demand for EUR debt and equity securities underlines the difficulties the ECB is encountering to stop the strong EUR from reducing inflation expectations in the euro area.
Foreign holdings of US government securities held at the Fed dropped by a whopping $104.5bn in the week to Wednesday 12 March according to the data published overnight. This marks the biggest single weekly fall on record and compares with just a $13.5bn drop the previous week and a 4-week average fall of $1.5bn. The previous largest fall came in mid-2013 (26 June, a week after the FOMC meeting) when holdings fell by $32.4bn. The selling over the last week coincides with the latest US employment statistics, a run of weak data from China and the escalation of the situation in Crimea and Ukraine.
Russia has threatened to respond with sanctions of its own should economic measures be imposed by the EU and the US after the referendum in Crimea this weekend. Russia currently holds $138.6bn of USTs (based on December data) and the country has been a net seller for a combined $11.3bn of USTs over the last two months for when data is available. China sold $47.8bn alone in December. The latest Treasury International Capital (TIC) data for January are only due next week so we won’t find out officially until May how much Russia’s US government debt holdings dropped in March.
So either China selling TSYs and buying EURs to make European import power stronger, if not so much its exports (much to Draghi’s ongoing horror). Or Russia, which may be dumping USTs to support the ruble… Or dumping just because.
Uh…………..stop drop and cover?
Thought this was appropriate…
OR, if you prefer Bowie…
This won’t end well
[img
[/img]
How exactly does selling treasuries being held by the FED work? Who is buying them then?
Let me guess, could it be the FED?
This won’t end well either….
[img
[/img]
The Federal Reserve itself is the “buyer of last resort” for treasuries.
No mention in the article if the Fed bought the $100 billion that were dumped.
The FED will soon be DEAD…and a new system will be introduced to continue the subjugation and enslavement of the American people and the rest of the planet!
@ AWD
I’d love some alternative media investigative journalist to be able to snoop around and find the answer to that one!
“China and Japan are by far the largest holders of Treasuries, with holdings of $1.269 trillion and $1.183 trillion in holdings at the end of December, respectively”
Japan is buried in debt, and will need to cash in bonds just to fund their debt and trade deficit.
China is buried in debt also, and will need to cash in their bonds to fund all their bad loans and insolvent banks (the ones that survive). They have the biggest credit bubble ever seen (see admin’s chart above).
Better to cash out before the US treasury market implodes.
And to think this is a drop in the bucket….though I suppose it won’t take nearly the bucket since its not volume or amount dumped rather than the display of loss of confidence. Still, makes you wonder how much is too much –
Greetings,
If I remember correctly, Japan attacked our Pacific holdings in response to “sanctions” we levied against them that were crippling their economy. In times past, such a response was called by its proper name – Blockade, which, by definition, is considered an Act of War. Preventing people and goods from moving from a specific nation is an Act of War. As such, Putin can use whatever means he wishes to respond to this act of aggression to include economic warfare if he chooses.
The American people that are cheer-leading for a confrontation with either Russia or China (or both) need to understand that these nations have modern military equipment to include nuclear weapons capable of turning all of our major population centers into parking lots. Our leaders, to include pumpkin-head Kerry threaten our very existence.
This article is a bit early. Russia took the treasuries they owned from the US Banks that hold them and brought them to Russia. No one has sold anything. The 10 year has been dropping lately. If you remember it was at 3 percent 3 months ago and is now at 2.64.
When the 10 year gets over 3.25 percent we should worry.
The taper will continue next week.
platoplubius says:
“The FED will soon be DEAD…and a new system will be introduced to continue the subjugation and enslavement of the American people and the rest of the planet!”
The Fed will never die. They might be temporarily stripped on their power and authority but they will be back under a new name.
Reminds me of a local furniture store around here. Every six months they go out of business and then re-open under a new name in a new location. Once the complaints about the place become water cooler talk, they do it again. It’s been going on for 10 years at least. Fucking sheep never learn.
I_S
Russia did it…
“A drop in U.S. government securities held in custody at the Federal Reserve by the most on record is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.
“Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data released yesterday, as the turmoil in Ukraine intensified.”
– Bloomberg March 14, 2014.
The reason: Putin’s pissed because, as an economic sanction, the US government won’t allow Russia to sell the Putin butt plug in the United States – see Friday Fail for a picture.
The Russians Have Already Quietly Pulled Their Money From The West
Submitted by Tyler Durden on 03/14/2014 – 21:22
Earlier today we reported that according to weekly Fed data, a record amount – some $105 billion – in Treasurys had been sold or simply reallocated (which for political reasons is the same thing) from the Fed’s custody accounts, bringing the total amount of US paper held at the Fed to a level not seen since December 2012. While China was one of the culprits suggested to have withdrawn the near USD-equivalent paper, a far likelier candidate was Russia, which as is well-known, has had a modest falling out with the West in general, and its financial system in particular. Turns out what Russian official institutions may have done with their Treasurys (and we won’t know for sure until June), it was merely the beginning. In fact, as the FT reports, in silent and not so silent preparations for what will be near-certain financial sanctions (which would include account freezes and asset confiscations following this Sunday’s Crimean referendum) the Russians, read oligarchs, have already pulled billions from banks in the west thereby essentially making the biggest western gambit – that of going after the wealth of Russia’s 0.0001% – moot.
” the Russians, read oligarchs, have already pulled billions from banks in the west thereby essentially making the biggest western gambit – that of going after the wealth of Russia’s 0.0001% – moot”.
……….. Obama out maneuvered again !!! But WTH, It’s only been two weeks since he threatened the Russians with seizing their accounts.
The Vacant Dead: One In Five Foreclosed Homes Is A Vacant Zombie
http://www.zerohedge.com/news/2014-03-13/vacant-dead-one-five-foreclosed-homes-vacant-zombie
We already discussed what would happen if the Russians started dumping our Treasuries last week:
Somewhere there was a comment from a poster saying that was what was happening… wish I could find it now. Either way, it’s a logical outcome from the current stupidity going on between Russia and the US. We should prepare as if it’s already reality.