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Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge

Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge.

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 (see chart below). 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.

Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge

Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge.

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 (see chart below). 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.

Putin Advisor Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions | Zero Hedge

Putin Advisor Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions | Zero Hedge.

While the comments by Russian presidential advisor, Sergei Glazyev, came before Putin’s detente press conference early this morning, they did flash a red light of warning as to what Russian response may be should the west indeed proceed with “crippling” sanctions as Kerry is demanding.  As RIA reports, his advice is that “authorities should dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.” Glazyev said the United States would be the first to suffer in the event of any sanctions regime. “The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.

From RIA:

“We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.”

 

US Secretary of State John Kerry on Saturday warned that Russian military interventions in Ukraine, which have been justified by the Kremlin as protection for residents in heavily ethnic Russian-populated regions, could result in “serious repercussions” for Moscow.

“Unless immediate and concrete steps are taken by Russia to deescalate tensions, the effect on US-Russian relations and on Russia’s international standing will be profound,” Kerry said.

 

Kerry mentioned economic sanctions, visa bans and asset freezes as possible measures.

 

Former deputy energy minister and lively government critic Vladimir Milov slammed Glazyev’s remarks, saying they would put further downward pressure on the ruble, which was pushed down Monday to a record low of 36.5 against the dollar amid fears about the possible outbreak of war.

 

“That idiot Glazyev will keep talking until the dollar is worth 60 [rubles],” Milov wrote on his Twitter account.

To be sure, a high-ranking Kremlin source was quick to distance his office from Glazyev’s remarks, however, insisting to RIA Novosti that they represented only his personal position. Glazyev was just expressing his views as an academic, and not as a presidential adviser, the Kremlin insider said.

That said, putting Russia’s threat in context, the Federation held $138.6 billion in US Treasurys as of December according to the latest TIC data, making it the 11th largest creditor of the US, which appears to conflict with what the Russian said, making one wonder where there is a disconnect in “data.” This would mean the Fed would need just two months of POMO to gobble up whatever bonds Russia has to sell.

The bigger question is if indeed, as some have suggested, China were to ally with Russia, and proceed to follow Russia in its reciprocal isolation of the US, by expanding trade with Russia on non-USD based terms, and also continue selling bonds as it did in December, when as we reported previously it dumped the second largest amount of US paper in history.

… especially when one considers the latest news released by the Kremlin:

PUTIN, XI DISCUSSED UKRAINE BY PHONE, KREMLIN SAYS
RUSSIA, CHINA SHARE SIMILAR POSITIONS ON UKRAINE, KREMLIN SAYS

Putin Advisor Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions | Zero Hedge

Putin Advisor Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions | Zero Hedge.

While the comments by Russian presidential advisor, Sergei Glazyev, came before Putin’s detente press conference early this morning, they did flash a red light of warning as to what Russian response may be should the west indeed proceed with “crippling” sanctions as Kerry is demanding.  As RIA reports, his advice is that “authorities should dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.” Glazyev said the United States would be the first to suffer in the event of any sanctions regime. “The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.

From RIA:

“We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.”

 

US Secretary of State John Kerry on Saturday warned that Russian military interventions in Ukraine, which have been justified by the Kremlin as protection for residents in heavily ethnic Russian-populated regions, could result in “serious repercussions” for Moscow.

“Unless immediate and concrete steps are taken by Russia to deescalate tensions, the effect on US-Russian relations and on Russia’s international standing will be profound,” Kerry said.

 

Kerry mentioned economic sanctions, visa bans and asset freezes as possible measures.

 

Former deputy energy minister and lively government critic Vladimir Milov slammed Glazyev’s remarks, saying they would put further downward pressure on the ruble, which was pushed down Monday to a record low of 36.5 against the dollar amid fears about the possible outbreak of war.

 

“That idiot Glazyev will keep talking until the dollar is worth 60 [rubles],” Milov wrote on his Twitter account.

To be sure, a high-ranking Kremlin source was quick to distance his office from Glazyev’s remarks, however, insisting to RIA Novosti that they represented only his personal position. Glazyev was just expressing his views as an academic, and not as a presidential adviser, the Kremlin insider said.

That said, putting Russia’s threat in context, the Federation held $138.6 billion in US Treasurys as of December according to the latest TIC data, making it the 11th largest creditor of the US, which appears to conflict with what the Russian said, making one wonder where there is a disconnect in “data.” This would mean the Fed would need just two months of POMO to gobble up whatever bonds Russia has to sell.

The bigger question is if indeed, as some have suggested, China were to ally with Russia, and proceed to follow Russia in its reciprocal isolation of the US, by expanding trade with Russia on non-USD based terms, and also continue selling bonds as it did in December, when as we reported previously it dumped the second largest amount of US paper in history.

… especially when one considers the latest news released by the Kremlin:

PUTIN, XI DISCUSSED UKRAINE BY PHONE, KREMLIN SAYS
RUSSIA, CHINA SHARE SIMILAR POSITIONS ON UKRAINE, KREMLIN SAYS

China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The Rescue | Zero Hedge

China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The Rescue | Zero Hedge.

While we will have more to say about the disastrous December TIC data shortly, which was released early today, and which showed a dramatic plunge in foreign purchases of US securities in December – the month when the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a selloff in Tsy paper – one thing stands out. The chart below shows holdings of Chinese Treasurys (pending revision of course, as the Treasury department is quite fond of ajdusting this data series with annual regularity): in a nutshell, Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013! 

This was the second largest dump by China in history with the sole exception of December 2011.

That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.

Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasurys increased in December, from $5716.9 billion to 5794.9 billion.

Why? Because of this country. Guess which one it is without looking at legend.

That’s right: at a time when America’s two largest foreign creditors, China and Japan, went on a buyers strike, the entity that came to the US rescue was Belgium, which as most know is simply another name for… Europe: the continent that has just a modest amount of its own excess debt to worry about. One wonders what favors were (and are) being exchanged behind the scenes in order to preserve the semblance that “all is well”?

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