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Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks
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...
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Higher yields, my dream. There has not been any paper that I would own that could promise to pay me without the borrower making a claim on my wealth. If someone were willing to pay me interest, without default, or at least make sure my principle secure, I would consider it. But, the risk of loss has been ingrained in the system since moral hazard was exposed to the lender. Now I have to have a govt. guarantee that I will not lose, at the same time that the govt. itself is going broke. The only taxpayers that are left are a remnant of the middle class who have not opted out of the carnage.
Ho Lee Fok!
I understand what you are saying, this is nothing short of an act of war. At least no one dies from it though!
US treasuries factor in 2008 crash, I read somewhere!
Only a financial advisor that is not retiring soon would tell you to stay in because it only took 5 years to recover the loss of the last recession.
Here are some more signs of a recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
http://www.zerohedge.com/news/2015-07-27/when-will-we-ever-learn/
Here is how to respond.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
And after the last fall you held the same amount of dollars, not counting inflation, that you had 10 years prior. 2009 = 1999.
Remember this is on-going..as we speak or write.
Ho Lee Fuk. Som Ting Wong.
Time to get a little cash out of the bank and check on the water and food supplies.
China needs some silver and gold with all that new cash
What happens if the FED goes broke?
It is a private corporation isn't it?
With China and who knows who else dumping treasuries, a black expense account to maintain for the CIA and military, PPT and government deficits to keep covering and a congress that doesn't know how to decrease spending, what does the FED do, it doesn't have any income as interest is dead?
If the FED were a household, the inhabitants would be homeless, but they are still buying F35 and super carriers, still sending missiles at their former allies at a million $ a pop.
You know how many people the FED could feed, shelter and provide medical care for with the money it doles out every month on stuff that doesn't benefit the average American a hill of beans?
I think this rout will do what Ron Paul always wanted, end the FED.
That is why Bernanke got out. He saw it coming.
Those who think it can't happen don't remember half the DOW or more going broke a few years ago. Who would have thought GM, Chrysler, AIG, Lehmann Bros, Goldman,Fannie, Freddie, Bear Sterns would all be on the ropes, gasping for air?
Hey Cherry Picker.
I enjoy you on this website.
You have no reason to trust me.
I have an important question to ask you.
"How can the Fed go broke when they can 'print' money?" They can put it anywhere they want to. Let that sink in.
What do you think "backs" what they print?
I say this in a loving way. If you are willing to let go of trying to make sense out of the details, you will understand the full monstrosity of the crime that has been perpetrated on all of us, indeed the globe, humanity itself.
When the Fed buys US treasuries, what are they buying them with?
The air is thin here, it is hard to breathe when you see it.
There is no accountability. None.
The US will default and the Fed will be the "bad bank" or the Fed will have first dibbs on all the goodies that are the property of the United States. Or maybe something in the middle where they liquidate some of it to the Fed, then the rest of everybody figures it out, and puts a stop to it.
In a way, Greece is facing the same thing. Right now they are refusing to see the folly, and they are letting their assets be liquidated to pay back the so called debt.
The currency, when everyone is clear that the printing is backed by nothing, will go to zero. Right now folks still want to buy into it because they don't know better, or it is in their self interest to be willfully ignorant.
Oh, they don't print to take care of people unless they see that they get something out of it too. They are stone cold sociopaths. You and I are too connected to the rest of humanity to really comprehend what they are up to.
I hope that all made sense. It took me a long time to get here. There is no law and order. There is no oversight.
MsCreant
I read enough of your posts to realize you have integrity, that is rare.
But to answer your question, I am aware money is printed out of thin air.
Maybe you can answer this for me.
If I am not mistaken, the US treasury prints the money or it has to be ordered printed by the US treasury.
TheFED and US treasury are two distinct entities.
If the US treasury quits sending the printed money or digits to the Fed or no longer allows them to produce printed money, that would leave the private corporation and its shareholders on a limb wouldn't it?
The government could walk away from it and start a government central bank from scratch and print all over again. :)
I know it sounds wild and maybe I am wrong, but if I am not, this could be a earthquake type thing. :)
you seem to assume that the US treasury is higher on the org chart than the FED. that would make sense to the uniformed public, but probably is not the case.
All of them are going broke, because each of us Americans know they should not have any power. I do not owe anyone my work product unless I agree to work for him. Cloward and Piven pointed out the path to getting rid of the government yoke, as did John Galt: refuse to work for them and the system will collapse. After the collapse I will be free to make a contract with whomsoever I agree.
wrg
What if Chinese and Saudis dumped FX in order to support their markets and economies.
The supportive measures have been good cover to reduce concentrated holdings - intentional or forced.
Rollover:
https://www.youtube.com/watch?v=m1aQ-XGWors
Not that anyone will read this but, ...
The "danger" with China is that it really can see the outside world as superfluous far easier than any other polity.
I know it's easy to think that in these "world is flat" modernity days that there is so much linkage between these economies competing economies (US & China) that it is "impossible" to drop a country.
But that is just it. China sees itself as competing - as striving to actually win.
US leadership is only concerned with some feeble corporatism unaligned with nation-states or cultural identity.
What do you think is a more tenable political position to be in inside Chinese financial circles - Big Corporate or Big China?
Sure to get rich is glorious, but these guys - especially the guys under 40 - are doing it for the Motherland.
Do you know ANYBODY in the West that is getting up in the morning and werkin' their strategery for the "Motherland?"
And that's what the smartest guys in the room from Harvard and Google forgot.
Forget yuan devaluation by 2% here or 1.7% there.
MinFin sees the dollar overvalued by 30-50% due to the laziness of Americans, their lost political identity and the fact that they gave up all their machines for a little bit of money.
When PBOC directs the liquidation of dollars for whatever reason they are doing it in terms of its already only worth half its face value.
I was back at BOC we would be selling dollars and buying gold. Period.
The US sees itself at the beach. China sees itself at war.
The China experiment (which they have the upper hand in that the Fed has all the FACE to lose) is to panic the UST market and coax the Fed to further buy up US debt and otherwise prove the illegitimacy of the dollar, or push Treasuries over 3.5%. After that it's 4%. And so on.
How many more years of Obama spending could the country take with the Fed buying 3/4 of the annual issuance?
The trick is how to treat the US of A like Ukraine or Greece and take the country economically without firing a shot.
Some general once said; "In the midst of chaos, there is opportunity."
The West wants to spread inflation panic across China to destabilize it. China should be focused on undermining US pensions in local governments just to keep its head above water.
October is fixed income month.
+100 You totally get it and this is why I follow China's (and the rest of Asia's) investment strategy. If you want to be a survivor you will do the same.
The only problem with China's strategy is that they are NOT just up against the USA. There is a Western international banking cabal that is power crazed to the point of being suicidal and that will be the ultimate enemy or ally?
Yep I agree I sounder if they sell some tres now then in Sep/ Oct announce some change ( float the currency ect) and mention they will reduce foreign bond holidings ie tresuries and start issuing their own bonds ( imagine the foreign demand from oil countries South America / Middle East) that could diversify away from USD in to a liquid market that has large gold reserves and is too large to destabilize..
Ie if they just announced the shift ( after they sold a part of the bonds) tresuries would be sold hard as 1) largest foreign buyer is no longer bidding at auctions .and is actually selling
2) there is for the first time post WW2, a non dollar block floating currency with. Bond market that countries can diversify away from USD. EU tried but the US messed them up with Greece ect ( ie why didn't they do QE in 2011 to support Greece) instead of letting their bonds blow up just 240 bill at the time ..
Also China's debt to GDP is closer to 30-50% as apposed to 100 plus for US/ EU/ Jpn)
If china pulled it off trade between them and Middle East / South America / rest of Asia and Africa would explode especially in financial transactions and part of countries reserves / corporate deposits would be left in China often countries biggest market.
The question is does the US have the confidence to let this development happen and or can they stop it.
sell when the price is high. and buy when the price is low. The selling at the right time. Yes the dollar is off its highs but it is still rather strong compared to where it was in 2013/14. In addition to devaluing there own currency the Chinese also can see that the USD is overvalued.
With the sort of volume that the Chinese are capable of selling they can bring the dollar down back to were it was just a couple of years ago. Not too low though because then the Americans won't buy as much of China's manufactured goods. It's a bit of a balancing act but I think Jet Li has better balance than Janet Yellen.
Exactly, dump treasuries when the rates are low, buy them when inflation skyrockets and they get more interest! The banks are huge holders of treasuries by the simple fact that are obligated to do so.
I agree - Russia and China are both pursuing the lessons of 'Sun Tzu' - The supreme art of war "Subdue your enemy without fighting"
I agree - Russia and China are both pursuing the lessons of 'Sun Tzu' - The supreme art of war "Subdue your enemy without fighting"
Many times people have underestimated the power and strength of U.S. We are not lazy, collectively, because we are not collective.
An interesting story for you. When I was in college in California more than half of my professional school were Chinese and they all studied together and performed very well. The Korean students studied together and performed admirably also. Nevertheless the TOP performing sudent in the class was Jewish, who studied alone and independently. Never underestimate your foe.
Lets see how that Jew performs when he has to do some manual labour.
Wow. Excellent post and, in my opinion, spot on.
I had to read a few hundred mostly worthless comments to get to your post, but well worth the time.
I didnt understand the October/fixed income comment. ..could you elaborate?Also, I would be interested in your comments on the gold market generally and how you see it playing out over the next 3-5 years vis a vis the usd and yuan.
You should expand on your comments and submit to zerohedge as a guest commentator if you are so inclined.
Tha ks again
good analysis. i recall hounding my 4 children who are all in their 20's now about how they needed to work hard because there were children all over the world kicking ass in school. i sent them to private schools and kept them away from video games and cable tv as long as i could. they turned out pretty well, but they are not (except for one) world class competitors blazing a trail for america. i always felt i was at war trying to raise a family and create a future whereas my wife thought and still thinks life is a day at the beach.
People outside the border of China has no idea what is the sentiment within the border. From bankers, scholars to common netizens, they all have a common understanding that once China has finished dumping US treasuries to stabilize RMB, RMB will be further devaluated to USD/RMB 8. While China is imploding, USD is still considered to be safe haven among Chinese citizens, while converting RMB to USD is now limited by the government.
People outside the border of China has no idea what is the sentiment within the border. From bankers, scholars to common netizens, they all have a common understanding that once China has finished dumping US treasuries to stabilize RMB, RMB will be further devaluated to USD/RMB 8. While China is imploding, USD is still considered to be safe haven among Chinese citizens, while converting RMB to USD is now limited by the government.
I was in China for 3 months this past year.
You don't know what you're talking about.
That's why the prob want to float the currency and issue their own national bonds. if the devalue then it's seen as a deliberate act of trade, if it's floating and QE type transaction then they can let it devalue with it being a
Govt instigated situation
Has anyone tried to get thier money out of the bank or even cash a check? They don't like it none too much.
listening to NPR today [don't say it]
it sounded like the Chinese are quite amaturish at the stock market,
that they created their own disaster
Irregardless, whether intentional are not,
it really has the manipulators busy, doesn't it.
Sept blood moon ya'll
pope at UN Sept 25
creepy days ahead.
hold on to your pointy hats, all the creep, the tires screech to a halt in PARIS
LOL, [don't say it] !
Sell Sell Sell
Sell the dollah
Flood the world with dollah and let the dollah crash too
Inevitable
China The Real Global Power Alasdair Macleod
https://www.youtube.com/watch?v=j3bhDf7OMr0
http://www.financeandeconomics.org/
pure coincidence you've had 3 Jewish fed heads in a row, and a Jewish dual citizen as number 2. Pure coincidence you have an Orthodox Jew heading treasury, a Jewish deputy secretary, and all 3 undersecretaries are Jews. Commerce - Jew. Office of Trade Rep, National Economic Council, recent heads of the SEC, CFTC, IRS, CBO...it goes on and on - and still, it is controversial to assert that perhaps the Fed banks are owned by Euro Jews {they are} and that the 2.5%, their genome and religious myths aside, have, qua 2.5% - too much power.
Hijacking of dollah printing machine
Russia is dumping, too.
Belgium is gonna have to step up big time.
Meanwhile, Ivan is also stepping up his game in Syria and in Ukraine.
expect more Israeli jets and drones to be downed. Playtime is over.
http://www.voltairenet.org/article188522.html
The US, UK, and Israel have terrorized the world, often through proxies, like ISIL, for far too long.
Thank God the real terrorists have been exposed. I thought it were the ones who wanted to behead me.
Punch meets counterpunch.
Just wait until white suburban veterans who know a thing or two about warfare reach for the ammo box.
"...absolutely amazing that the 10 and 30 Year Bonds have cratered..."
I guess Tylers mean yields have cratered, and in return price is gone up considerably. These bonds and then some were probably all gobbled up as collateral in the derivatives casino, which is probably fully on fire by now. The "markets" surely are getting smoked, so...
106 billion USD. that's just over the gdp of Puerto Rico. That's one less state the Chinese own. oh wait..
What happens when China liquidates all of its Treasury holdings?
It's a game of hot potato. They won't be caught holding the bag when the music stops.
"when you aint got nothing you got nothing to loose" - Bob Dylan
Loose=opposite of tight
Lose=opposite of win
That seems to be the way the US spells 'Lose' = 'Loose' in the US - I have noticed it many times !
That seems to be the way the US spells 'Lose' = 'Loose' in the US - I have noticed it many times !
Its that crappy grade 1-12 education system in the USA.
Amazingly lots of people who misspell it think spelling doesn't matter.
They are future burger flippers.
What happens when China liquidates all of its Treasury holdings?
Grab your popcorn - dis gonna get good!
China can make lots of things for domestic consumption. If China stops making things to send to the USA, Walmart and Apple go under.
China is already making smartphones just as good as iphone for lots less. Seed Geek Buying website.
As good as iphone? Then they will surely fail. lol
A hundred billion is peanuts when you can print 1 x 10^12. The Chinese need a faster printing press.
Wall St. offshored every middle class job they could.
Seems they offshored control of markets at the same time.
Lol. Now it's on. Krugman, you're up.
(good call YC).
Let me see if I have the timeline/story straight, correct me if I'm wrong.
* China tries to get into the SDR and is rebuffed, one reason given being that they need to let their currency float.
* China loosens the band in response and devalues the Yuan by 5%. It is then accused of currency manipulation.
* China's capital city's port is hit by the "rod of God".
* China's equity crash starts spreading to the U.S.
* China begins defending the Yuan and is accused of "dumping" treasuries.
Looks like a damned if you do damned if you don't scenario to me. JMHO.
Silver For The People
I'm surprised Bejing hasn't experienced 5,000 degree weather (yet) as a result of this.
1. It'll be a cake walk
2. Bring it on, China
3. ???
4. Mission accomplished
Could China also be dumping gold and helping keep the price relatively flat despite rising VIX?
@radioactive something is keeping it down....like everything in this mad house the manipulation is rife in the system. However like a damaged wheel that's oscillating those oscillations are becoming more severe and reaching the point of catastrophic failure... I believe when that happens the rush to AU will cause the breakout we have all been expecting
www.teamramgold.com/about-us
Why do the Chinese get rid of their reserve US dollars ? Like their BRICS allied (India) etc ..., they get rid of the fragile currencies of their most indebted borrowers and buy major firms all over the world with them . For example unlisted Chinese unlisted Insurance Anbang bought The Waldorf Astoria Hotel in New York, a tower of offices in Manhattan, several towers in London and is now buying a major bank in Portugal
http://fortune.com/2014/10/07/who-is-anbang-insurance-the-new-owner-of-new-yorks-waldorf-astoria/
http://www.reuters.com/article/2015/06/01/novobanco-ma-china-idUSL3N0YN2OT20150601
http://usa.chinadaily.com.cn/us/2015-02/25/content_19654246.htm
Other Chinese and Indian big firms act similarly
Yep there buying it up all over there planet with what? lol
there is a piece of the puzzle missing because this explanation does not make sense.
Why would a Wookiee, an 8-foot-tall Wookiee, want to live on Endor, with a bunch of 2-foot-tall Ewoks? That does not make sense! But more important, you have to ask yourself: What does this have to do with this case? Nothing. Ladies and gentlemen, it has nothing to do with this case! It does not make sense! Look at me. I'm a lawyer defending a major record company, and I'm talkin' about Chewbacca! Does that make sense? Ladies and gentlemen, I am not making any sense! None of this makes sense! And so you have to remember, when you're in that jury room deliberatin' and conjugatin' the Emancipation Proclamation, does it make sense? No! Ladies and gentlemen of this supposed jury, it does not make sense! If Chewbacca lives on Endor, you must acquit! The defense rests. [/chewbacca defense]
Your logic is impeccable ...
Can you explain why Chewbacca is married to the US president?
And is it true that in the new Star Wars movie, Harrison Ford will not play the role of Han Solo, but instead will be cast as Yoda?
If China debases, the cost of food for the poor of China goes up (social instability) and the currency war heats up further ...
If China appreciates or strengthens the YUAN, their exports crash further ...
(China is stuck between a rock and a much bigger rock)
But China can dump U.S. Treasuries - sort of a "no brainer" at this point.
https://www.youtube.com/watch?v=vFpx7Q8SAiw
Its been mentioned elsewhere & beyond China has been buying up farmland all around the world.
Wouldn't yields rise if China is dumping US paper?
Currently up 5% on the 30 year and 250% on the 3 month!
The Fed bought some $4T in treasuries and MBS with QE. It wouldn't be all that surprising to anyone if the Fed was to buy more. But I doubt China would liquidate all of their reserves, for that would have a detrimental effect on the CNY thereafter. China only wants to lower the value of their currency to help their manufacturing, export-driven economy. Liquidating all their reserves will come at a price China is unwilling to bear.
so is this good? I guess so, if China is dumping US treasuries at this speed, and tehy have as I heard 4 trillion spare cash, and the most gold. Bye bye USD? that'll be great. Enlighten me people, im new to this.
Late to comment but I must ask. If China is selling, who the heck is buying?
Who's buying? Millions of highly paid US manufacturing workers with hefty salaries, good benefits, and secure jobs. But, I could be wrong.
Well so they should be. They're called "reserves" for a reason!
I have to wonder if China isn't exchanging it's US bonds for gold. Once they "run out" of bonds, would they become a gold backed currency?
That would benefit Chinese savers dramatically, although it would also lower exports, due to the rising value of their currency compared to others.
Or maybe I am all wet.
Well... there's your supply of treasuries for QE4.
Looking at TIC data for myself I see no evidence of China doing any such thing.
I don't think it is wise to be hand feed from zerohedge...oh...zerohedge said it...they are always right...i've made so much money on their crashing dollar and gold calls!
At least they are getting top dollar...
Currency regime change is part of their financial reforms and is undergirded by the need to align their currency to the global markets. (Not irresponsible to their own People given the size of their economy with deepening linkages to the global economy). The recent devaluation is such an alignment to mute the market force of excessive speculation that restrict their flexibility to set domestic interest rate to wean their highly indebted real economy away from an export model. There are trade offs in this change like the current funds outflows that have been calculated. You are wrestling with moving parts against potent market forces and stop-go measures are not indicators of definite failures. The use of their foreign reserves and in particular the dumping of Treasuries is just a choice. A choice with less detriment to their domestic economy. (Go ahead and be entertained by the spins of conspiracy theories and think that their focus is to start a currency war, etc).
The spillovers to the global economy from their currency devaluation is firstly something beyond their control as the global markets hand out its rewards/penalties. Secondly, China has no responsibility to prioritize the easing of consequences to other economies above its Own which is facing enormous challenges. The feeling is mutual too from Others and well acknowledged within the halls of Beijing but this is far from embarking on financial aggression. Also, you do not need to ask anyone permission to defend your economy tottering towards implosion.
LOL ...Stunner ? Since when have China's Central Bank not issued guidances to the global markets of impending currency regime changes and warned of the domestic volatility caused by the high RMB before the devaluation. (Choosing to bet against them has already caused a bloodbath in the carry trades). All other effects of S&P fall in alignment with a greater fall in 30Y Try, etc are not China's targets. They are the chain reactions of market forces and after the fact concoted by Financial Spinners as causes and effects. Cheeries on the Cakes lie in all these wild prognistications of emptying the tills of US Try on the markets...great entertainments.
Here's to the Chinese dumping 1 or 2 Trillion of US Treasuries -- I'd like to see that !
It might just flush out the whole crooked casino that is the USA Share Market. It also might even give Gold a serious leg up !