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

[Cap]

Now this is interesting:

A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week

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.

Read moar...http://www.zerohedge.com/news/2014-...ord-amount-over-100-billion-treasurys-held-fe

 

[Cap]

The questions I have, who is buying up this debt? Is the FED? If so, would not that be increasing QE?

 

[Zippyjuan]

Doesn't necessarily mean that foreigners are selling US debt. Total foreign held debt is over $5.8 trillion so the ones held by the Fed in custody for foreigners is about half of that.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

What the chart zerohedge shows is;

This item indicates the face value of marketable U.S. Treasury securities held in custody for foreign official and international accounts, and includes U.S Treasury STRIPS and inflation compensation on TIPS. This item does not include securities pledged as collateral to foreign official and international account holders against reverse repurchase agreements with the Federal Reserve presented as presented on the actual release in tables 1, 8, and 9.

Money could have also simply been moved out of custody accounts to another place (such as their own banking system). Russia perhaps. They own about $135 billion worth and could have moved them out of the Fed to their own bank to avoid potential sanctions. The timing and the numbers would fit. This article supports my theory: http://www.businessinsider.com/russia-pulls-money-out-of-us-accounts-2014-3

Talk that Russia could be behind the bulk of the more than $100 billion drop in the Federal Reserve's custody holdings for foreign central banks in the week ending Wednesday has many observers scratching their heads. This would represent about eighty percent of their dollar holdings.

As we noted earlier, rather than selling the Treasuries, Russia simply transferred them from the Federal Reserve out of the U.S. The incentive would be the threat of sanctions following this week's Crimean referendum.

There is precedent for this kind of behavior from Russia. Recall the origins of the Eurodollar market. The Eurodollar market has nothing to do with the European Economic and Monetary Union (EMU) or the euro itself. Rather, the Eurodollar market refers to dollars outside the U.S., initially Europe.

In 1956, the U.S. and the Soviet Union opposed the British and French (and Israeli) invasion of Egypt (Suez Crisis). The U.S. threatened to sell British pounds and intensify the pressure it was already experiencing in maintaining it peg to the dollar under Bretton Woods. It also threatened to veto the U.K.'s request for a large IMF assistance package. Russia witnessed the U.S. willingness to use its financial acumen to impose its will on its special ally.

At roughly the same time, a reformist government came to power in the Hungary and among other things tried to leave the Warsaw Pact. The Soviet Union invaded. Russia feared that the U.S. would use its financial superiority against it in protest. In 1957, Russia-based Narodny Bank shifted dollars from the U.S. and deposited them in its branch in London. Viola, the birth of the Eurodollar market.

There were other advantages of this offshore market for U.S. dollars beyond the Soviet Union's intentions. Those dollars were not subject to U.S. interest rate cap or regulations. These dollars, as we know with the benefit of hindsight, became the basis for a new bank credit, and a critical part of international finance.

The logic now is that Russia is bracing for the next round of sanctions. The U.S. and Europe are reluctant to confront Russia with militarily. U.S. and Europe did not confront Russia militarily after the Soviet Union invaded Hungary or Czechoslovakia, and it wasn't that Eisenhower or Johnson (the respective presidents at the time) were weak as some claim about Obama. Nor did President Bush confront Russia with arms when it invaded and continued to occupy parts of Georgia in 2008.

To be sure, the Federal Reserve does not publish the client list of who uses its custodial services. As we noted, some suggest it could be China diversifying reserves out of dollars and ostensibly into euros, which would help explain the persistent euro strength. However, we are a bit more skeptical of China in that it has a lot of its plate presently. The timing of the drop in custody holdings makes Russia a more likely suspect. The intervention by emerging-market central banks, including Russia, seem far too small to account for $100 billion move in a week

 

[Seraphim]

Russia and China telling the US to FUCK OFF regarding the Ukraine.

 

[Seraphim]

Most likely Brussels and European counter parts.

The EU desperately needs the US to counter the Russians. If UST Yields spike and the US is weakened, it is a terrible thing for the EU.

This is getting hot hot hot.

The questions I have, who is buying up this debt? Is the FED? If so, would not that be increasing QE?

 

[Seraphim]

In addition to troops and economic tactics;

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/03/20140314_tanks3.jpg

 

[Zippyjuan]

Most likely Brussels and European counter parts.

The EU desperately needs the US to counter the Russians. If UST Yields spike and the US is weakened, it is a terrible thing for the EU.

This is getting hot hot hot.

If it is Russia (the Fed never says who or how many Treasuries they are holding for any countries), them taking their Treauries home for safe keeping suggests they do not intend to "dump" them as some have suggested. Treasury yields FELL when the Ukanian crisis developed.

 

[Cap]

“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”

Source: http://www.bloomberg.com/news/2014-...-record-decline-fuels-russia-speculation.html

 

[JasonC]

Seems to me they were moved/transferred (off of the FED's balance sheet), not sold.

 

[DFF]

It was probably the Russkies getting the fuck outta dodge before Mr. Ed John Kerry passes some ridiculous sanctions (which will have the unintended effect of harming the US and the EU).

The big one will be when China starts selling their treasury holdings, which given their fairly close alliance with Russia and our politicians reluctance to maintain any sort of financial responsibility, might not be that far off in the future.

 

[Zippyjuan]

If China starts selling, the value of their currency vs the dollar soars and they don't want that because we won't be able to afford to buy nearly as much stuff from them (a higher yuan makes their exports to us more expensive). That would worsen their already slowing economy and possibly lead to domestic unrest over jobs. They aren't going to dump anything.

 

[Seraphim]

Most likely Brussels and European counter parts.

The EU desperately needs the US to counter the Russians. If UST Yields spike and the US is weakened, it is a terrible thing for the EU.

This is getting hot hot hot.

Hey look, I was right! Dead on, in fact!

http://www.zerohedge.com/news/2014-...nd-shocking-third-largest-holder-us-treasurys

PS: Brussels in the capital of Belgium

 

[Zippyjuan]

From the link:

The same Belgium which at the end of 2013 had a GDP of just over €100 billion, or a little over one-third what its alleged UST holdings are.

Belgium's total GDP is nearly $500 billion a year. https://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4AVND_enUS580&q=belgium+gdp Their reported holdings of US Treasuries is $310 billion.

Russia is listed as having $131 billion worth so they haven't dumped theirs (but figures are for January so we don't really know yet but it does seem more likely that they moved their holdings to their own bank).

You are right that Brussels is the capital of Belgium (and headquarters of the EU). They also have a very high per-capita income- ranking #18 in the world so they do have lots of money. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita