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Treasuries Show No Lost Appetite With Zero Dollar Returns:
Buy TBT calls. Make money.
One may also surmise that these central banks will have the inside line on any future policy shifts, and therefore are adjusting their positions accordingly.
The increase in exposure to the long end at the expense of the short by China does not compute.
On a different note I wouldn't be too suprised by a complete bust in foreign treasry purchases by the end of the year. All part of the master plan to destroy the dollar with a little help from our friends. Selling long dated treasuries and buy stocks would seem like the most rational move for all players involved if this develops. But what do I know.
They have some big commodity positions going which can be thought of as dollar bearish and since buying the long end of USTs is dollar bullish, there might be some re-positioning of hedges going on. In isolation, though, their bid on the long end seems to be like doubling-down on US deflation, and a vote of no-confidence in Ben.
Sounds rational - why try to outbid Ben?
Its odd, China's movement out of Tbills into Tbonds. Watching the movement out of GSEs looked like positioning / leverage. So... that theory goes to the back burner?
Oddly, SSE diverges and falls in concert with Asia bourses.
Strange how there is a sudden pick up in treasury purchases at the exact same point that there is a drop in agencies in that first graph. Seems that the treasuries for agencies program is working quite well.
Look at this and you see that UK, Japan and Hong Kong are the only ones with significant increases. The others are flat.
Hong Kong has a dollar peg. If people see the dollar weakening they go to HK$ hoping the peg will be adjusted upward. The Central Bank sells HK and buys $s at the peg. So they get a flood of dollars. They invest this in only Short Term stuff. This is hot money. It will leave when the pressure is off. (a revaluation of HK$)
Japan has the same problem. This is about currency management and not an investment in the US.
UK has dollar liquidity from the Fed. (swap lines) This is showing up as increased holdings. But it is a wash and will be reversed to normal levels.
Net net there is no increase. How are we going to sell $1T a year for the next decade? I don't get it.
Great job, gents, combining the long-term data with the short-term data.
Nice clear analysis, without the Brad Setzer/CFR apologia; thanks!
Please continue with these type of tic posts, ever since brad setser quit blogging I can't find where else for the china and tic analysis.
I don't mean to discount the outrageousness of the Fed's treasury purchasing, but a major reason Chinese treasury purchases are down is that they have fewer dollars available from the shrinking trade imbalance with the US to buy them with.
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