Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks

Tyler Durden's picture

On August 11, China devalued its currency, and in the subsequent 3 days the onshore Yuan, the CNY, tumbled by some 4% against the dollar. Then, as if by magic, the CNY stabilized when China started intervening massively, only this time not through the fixing, but in the actual FX market.

This means that while China has previously been dumping reserves as a matter of FX policy, after August 11 it was intervening directly in the FX market, with the intervention said to really pick up after the FOMC Minutes on August 19, the same day the market finally topped out, and has tumbled into a correction since then. The result was the same: massive FX reserve liquidations to defend the currency one way or the other.

And yet something curious emerges when comparing the traditionally tight, and inverse, relationship between the S&P and the Treausry long-end: the drop in yields has not been anywhere near as profound as the tumble in stocks. In fact, the 30 Year is wider now than where it was the day China announced the Yuan devaluation.

Why is that?

We hinted at the answer on two occasions earlier (here and here) and yet the point is so critical, and was missed by virtually all readers, that it deserves to be repeated once again: as part of China's devaluation and subsequent attempts to contain said devaluation, it has been purging foreign reserves at an epic pace. Said otherwise, China has sold an epic amount of Treasurys in the past two weeks.

How epic? We turn it over to SocGen once again:

The PBoC cut the RRR for all banks by 50bp and offered additional reductions for leasing companies (300bp) and rural banks (50bp). All these will take effect as of 6 September, and the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today's onshore exchange rate.  In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

There you have it: in the past two weeks alone China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime!

But wait, there's more: recall that one months ago we posted that "China's Record Dumping Of US Treasuries Leaves Goldman Speechless" in which we reported that China has sold some $107 billion in Treasurys since the start of 2015.

When we did that article, we too were quite shocked at that number. However, we - just like Goldman - are absolutely speechless to find out that China has sold as much in Treasurys in the past 2 weeks, over $100 billion, as it has sold in the entire first half of the year!

In retrospect, it is absolutely amazing that the 10 and 30 Year Bonds have cratered considering the amount of concentrated selling by China.

But the bigger question is how much more does China have left to sell, if this pace of outflows continues. Here is SocGen again:

From an operational perspective, China's FX reserves are estimated to be two-thirds made up of relatively liquid assets. According to TIC data, China held $1,271bn US treasuries end-June 2015, but treasury bills and notes accounted for only $3.1bn. The currency composition is said to be similar to the IMF's COFER data: 2/3 USD, 1/5 EUR and 5% each of GBP and JPY. Given that EUR and JPY depreciation contributed the most to the RMB's NEER appreciation in the past year, it is plausible that

the PBoC may not limit its intervention to selling only USD-denominated assets.


* * *


China's FX reserves are still 134% of the recommended level, or in other words, around $900bn (1/4 of total) and can be used for currency intervention without severely impacting China's external position.

Should the current pace of liquidity outflows continue, and require the dumping of $100 billion in FX reserves, read US Treasurys, every two weeks this means China has, oh, call it some 18 weeks of intervention left.

What happens when China liquidates all of its Treasury holdings is anyone's guess, and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace, and best of all: will the Fed just sit there and watch as the biggest offshore holder of US Treasurys liquidates its entire inventory...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
I AM SULLY's picture
I AM SULLY (not verified) Aug 25, 2015 7:19 PM

P.F. Chang's ...

(now they're having mega dumps)

johngaltfla's picture

Now would be a good time to empty one's bank account if that hasn't happened already...

jcaz's picture

I'll worry more when the Fed starts selling THEIR inventory of Treasuries......

TruxtonSpangler's picture

Dumping treasuries? Say, thats a nice looking stock market you get there, shame if anything happened to it... Hey, look at those nice chemical plants, pity if anything happened.

SMG's picture

ZH, if this is true, this is EPIC.   The US $  as a reserve currency days are few to come.

What crazy times to live through.

DavidC's picture

And China's sitting on a pile of GOLD...


MANvsMACHINE's picture

After the Chinese dump TSYs, it's only an hour until they get the urge to dump more of them.

new game's picture

funny, reminds me of when i was dumping my china small caps back when lithium, solar and oil stocks went bananas. once i started, i dumped it all and made for the exits and never came back. made some great gains. since then they got decimated once the massive fraud was uncovered. oh the days, ha .50 to 3.00 in a matter of day, sometimes hours, even minutes...

edit:fuck china

boogerbently's picture

$100 billion.......No "T", No "Q" ???

Chump change. Hillary has that much lost in the sofa cushions at the "Foundation".

Squid-puppets a-go-go's picture

chump change? At that pace they will be divested of all $US treasuries in 6 months

do you beleive the rest of the world will pick up what they see china dumping hand over fist? Or do you think they will join the dumpfest - try to frontrun it even, to get best value.

And if that happens......... Hyperinflation in the u.s.a

UnpatrioticHoarder's picture

Were the 'Rods from God' deployed on Tianjin retaliation for this?

Stuck on Zero's picture

Dumped treasuries?  I'll bet they were picked up by mysterious "Caribbean Banking Centers."


FEDbuster's picture

Trading their FRNs for gold?  Barbarous relic my ass. 

Uchtdorf's picture

But if China is selling, somebody is buying.

Richard Chesler's picture

Gargantuan $106 billion...

Psss... Nothing that the Bernank or Mr Yellen can't print in a day or two...


palmereldritch's picture

Belgium called.  They want their parking spaces back.


Nevermind. NATO's got it covered

pilager's picture

Yep! I'm thinking Power Rod!.

After the back 9

roodeetoodee's picture

Seems like a good strategy. Burn USD to maintain Yuan at acceptable levels until they get reserve status with IMF, then have the market maintain the level for them on back of the new reserve rating.

Double whammy to US no?

So I dunno if Chinas getting done or Chinas doing the doing.

This whole thing has become my favourite spectator sport for sure tho.

IRC162's picture

Question for the finance guys: do Chinese US Teasury holdings or the renmibi's valuation have a higher correlation with future nuclear payload deposits invested into China's mainland?

This popcorn is getting stale, I think I need to nuke it in the microwave....or soon the back porch.

Tick tock

Save_America1st's picture

So when China sells U.S. T's, isn't it the Fed the one who has to buy them back?


If the answer is "yes", then how was the Fed "surprised" that China devalued the yuan against the dollar? 

I think the Fed and China collaborated to do just that.  It gave the dollar a boost in value against the yuan which was the excuse the Fed needs to not raise rates in September.  They know they can't raise the rate even a fraction of a point or their whole 4.5 Trillion dollar book explodes.

They needed a world-wide market reaction to China's moves in order to tank markets enough to keep from having to raise rates and to give them the excuse they've always wanted to print Trillions in QEternity.



palmereldritch's picture

via PCR

Their budget deficit is in the red, and their trade and current accounts are in the red.  So, Belgium didn’t have the money, and yet, they managed to pick up $141.2 billion in U.S. Treasuries over a three month period.  So, where did they get the money?”

Those chickens are in Belgium not with the FED and they haven't yet come home to roost.

Your calculus appears to exclude reference to these [goose] eggs.

FreedomGuy's picture

The Fed is not going to raise rates. It has always been a bluff and a highly conditional statement. When they said that the Dow was humming along nicely and Obama had not yet fully wrecked the economy. In the new order even a flat economy is considered a major success.


conscious being's picture

What a wacky world. The Fed manages the economy with a good bluff. Next they'll be consulting chicken entrails. If you were a friend of The Fed and they let you know in the beginning it was all a bluff, you could make a lot of money.

Squid-puppets a-go-go's picture

The Fed may well tell its kin and kith that its a bluff. But only the Fed's piper decides the timing of the bluffs' call. You can be in the know and still lose your great grampappy's fortune

its that kinda knowledge that'd make a pragmatic oligarch foster an alternative to the $US fiat system

Bangin7GramRocks's picture

Reminds me of that time I put $20 in a slot machine and pushed the button. It started ringing and lighting up! I took my hard earned profits and went home. Ahh...memories.

jfvp's picture

actually unless you have a mental impediment it's clear to see that China is the one doing the Fucking ...usa .....

Po Rich's picture

I'd say they have a belly full, they are USED2bA Treasuries, no urge to eat more soon when you don't have the

stomach for them.

buzzkillb's picture

So who gets forced into buying them? That should make for a hilarious ah ha moment.

Kotzbomber747's picture

Right! The question is: who's buying those treasurie?

buzzkillb's picture

Greece has forever debt, they can do it! Isn't this lining up with all the years of the rumors of 401k's and IRA's being forced into buying gov funny paper? Who would have ever seen that coming?

Bangin7GramRocks's picture

Listen citizen. Do you want 40% of your 401k at retirement or 0% of your 401k at retirement? I'll wait 48 hours for your response. In the meantime, we will vote today to our masters wishes. God Bless America & We Love The Troops!

Kotzbomber747's picture

Right! The question is: who's buying those treasuries?

Tall Tom's picture

The Fed of course.


First I am NOT STUNNED at all.


THis will get one hell of a lot more interesting when EVERY CENTRAL BANK, GLOBALLY start todo droves.


I have been writing that the World Central Banks will be divesting of their $12 Trillion in CASH, held in their vaults, for many months.


Just how in the hell do you raise liquidity when your Banks are technically insolvent? You SELL EVERYTHING, even at a discount, to keep that CASH FLOW. It does not matter if they are "income producing". That actually makes them a better sell.


The Chinese are smarter as they seek the exits and their Markets are starved of liquidity.


Wait until BRAZIL starts doing this. Wait until the Japanese, as they collapse, start doing this.


The shitshow has just begun.


And Hyperinflation will make its debut on United States shores. That is when it will be a riotous time. The party will be in full swing.


If you are still clueless by now, and have refused to prepare you are really fucked and there will be no help for you.


If you have had the clue then you already would have exited the Ponzi Game as the music has stopped playing and everyone is scrambling for a chair of comfort...which...we already have.


Laugh as you sit on your Gold and Silver as they are the hard money for the hard times.


As for the rest, if you really pity them, then feed them.


Many are going to die horribly as a result of the folly of the Federal Reserve.


So no...I am not stunned in the slightest. It is working out according to what I've predicted.


$20 Oil in November

$1000 Gold in November

and $10 Silver in Noovember


After November the price of everything just hyperinflates.


First massive deflation followed by a crushing be fllowed by another period...a long term period...of deflation as the World suffers a horrible depression which will last for decades...if we do not go to war to kill us all first.


Yeah...That is what the elite do not understand. Nobody survives a Thermonuclear Holocaust. They believe that Nuclear Wars are somehow winnable. What a bunch of psychopathic, maraudering, murderous, and Satanic dipshits.


We are so fucked.

FEDbuster's picture

World War 3

Worldwide Depression

TheObsoleteMan's picture

You can keep your gold and silver. My two metals will be king {lead and brass}. With my metals, I can have all of the of the other metals I want.

Tall Tom's picture

If you can defeat my Flamethrowers, Land Mines, Claymores and Rocket Propelled Grenades. then all of it belongs to you.


If you have not been reading my posts I have used this forum...EXTENSIVELY to educate the people here, how to manufacture these items from household chemicals..


Good luck with your pea shooter. Let me know how they work against armor...YOU FUCKING THIEF.

Tall Tom's picture

"Don't shoot!!! Let then BURN!!!"


My favorite scene from, "Saving Pricate Ryan" It demonstrates the affectiveness of a flamethrower against a fortified defense.


They are easy to construct. One pressurized Gas Canister feeding into a canister filled with Napalm.

ThroxxOfVron's picture


Guns are difficult to acquire in some localities.  Knowing how to handle them is prudent; but, acquisition many not be worth the effort.

Improvisation is going to rule the day.

Long tools and chemicals.

Nuthin' to see here in the ol' garage: tools, rope, wire, paint, solvents, fertilizer, petroleum products, bug spray.

Just standard gardening supplies...

I do a little handy work around the house...

Make our own soap...



BringOnTheAsteroid's picture

If you could explain the actual mechanism of hyper-inflation that'd be great.

You need the physical money supply to ramp up off the charts don't you, in order to get hyperinflation. I can't see anyway past unstoppable deflation as bankrupticies accelerate, debts are renegged on, assets are seized (or not depending on the semblance of the rule of law).

In short I can only envisage the destruction of money that will even outpace even those dumb mother fuckers at the Federal Reserve and their printing press. They can print all the money they like but the velocity will be stuck at zero.

Through what channels, what sequence of events does hyperinflation occur?

Tall Tom's picture

BOTA...Good reading your question...


In Foreign Central Bank's vaults sits an amazing $12 Trillion of PRINTED US Dollars. (NOT ELECTRONIC...but PHYSICAL)


They will divest of those. 


They will play the role of the Weimar Republic peasant.


Yeah...Don't ya worry none. There is always enough fuel...TO GETCHA TO THE CRASH SITE.


Wanna debate God? (Teasing)

kridkrid's picture

My brother from another mother!

Tall Tom's picture

After the Chinese dump TSYs, it's only an hour until they get the urge to dump more of them.

What? They must have got the runs or something...THE BANK RUNS.
Antifaschistische's picture

I don't understand (wo bu mingbai).  If China is planning on a 20% RMB deval then why would they be dumping their US Treasuries now?   My lack of understanding would lead me to believe it would be better to dump after the deval.

On the other hand...when the FED is jacking up the price of bonds, why not sell when you know the FED is overpaying.  Buy them back later when the FED is out of powder.....if a journal entry printing press ever needs powder.

buzzkillb's picture

I would devalue the Yuan after selling treasuries so I can buy the manipulated down physical gold using the now stronger $USD. That way when the $USD is depegged from oil, I suddently have a currency backed by something tangible. Or something like that.

Iudaea Delenda Est's picture
Iudaea Delenda Est (not verified) Antifaschistische Aug 26, 2015 1:10 AM

This is war, son.

SparticusUK's picture

Id've said : Wu bu dong - rather than using wu bu ming bai lur... quicker..and you get to use the word 'dong' - no brainer really 

ThroxxOfVron's picture

"If China is planning on a 20% RMB deval then why would they be dumping their US Treasuries now?   "


China has NOT planned any such thing!

They are being forced by the strengthening of the $US to let go of the Yuan peg to it.

China, like many other EM economies, took on waaay too much debt that is for all intents and purposes denominated in a foreign currency: $US.  

-& far worse: they missallocated and misused the borrowed funds: empty cities, over capacities, etc.

-Now the Dollar is rising fast making those debts untenable at the low margins that trade with the US has been squeezed down to by the multinationals like Wal Mart and Apple.  The marginal utility of debt is collapsing, and carrying costs for the existing debt in $US dollars cannot be paid with revaluation.   Like in the US: the Banks and Corporations don't want to default and shutter.  The Oligarchs own and run it all: so the Government is trying to bail them out with the Treasuries that have accumulated from the payments of the balance of trade.

China is about to find out that trade with the US was only a good deal if they managed their economy wisely, keeping a lid on debt and NOT allowing missallocation of resources and/or overcapacities and pollution to accure; -which they did NOT.

NOW they will pay with a tremendous bust and will be forced to cede the Treasuries accumulated during the mismanaged trade boom.