What Would Happen If Everyone Joins China In Dumping Treasurys?

Tyler Durden's picture

On Tuesday evening in "Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks," we quantified the cost of China’s near daily open FX operations in support of the yuan. 

As BNP’s Mole Hau put it on Monday, "whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.And a reduced role for the market means a larger role for the PBoC and that, in turn, means burning through more FX reserves to steady the yuan.

Translation and quantification (with the latter coming courtesy of SocGen): as part of China's devaluation and subsequent attempts to contain said devaluation, China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime. 

Notably, that means 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. Today, we got what looks like confirmation late in the session when Bloomberg, citing fixed income desks, reported "substantial selling pressure in long end Treasuries coming from Far East."

The question or rather, the series of questions, that need to be considered going forward are: 

"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…"

And make no mistake, these are timely questions, because the combination of collapsing commodity prices, China’s devaluation, and the threat of a Fed hike have put enormous pressure on EM currencies the world over and that, in turn, means a drawdown of EM FX reserves and pressure on DM bonds. As JP Morgan put it last month, "the sharp reversal in EM FX reserve accumulation between Q1 and Q2 is consistent with the sharp reversal in DM core bond markets. Core bond market yields collapsed in Q1 but saw a big rise in Q2. This is a good reminder of how important FX reserve managers remain in driving core bond markets."

Indeed. And just how important, you ask, is that for US Treasurys and, in turn, for Fed policy going forward? For the answer, we go to Citi:

Taken in isolation, a reserves drop of 1% of USD GDP (=$178bn) would infer a rise in 10y UST yields by 15-35bp based on a range of academic studies.

And more to the point:

Suppose EM and developing countries, which hold $5491 bn in reserves, reduce holdings by 10% over one year. This amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp (35bp*3.07).

In other words, if EM currencies remain under pressure - and there is every reason to believe that they well - the reserve drawdown necessary to stabilize currencies and maintain unsustainable pegs means more Treasury liquidation and massive upward pressure on yields. Here's a look at EM reserve accumlation vs. the yield on the 10Y (inverted):

As for what this means in the US, we go to Citi one more time:

These moves are unlikely to happen in a vacuum. For instance, any move by these magnitudes would choke off the US housing market and see the Fed stand still or ease. 

Of course one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.

And as we never, ever tire of reminding readers, it all harkens back to last November...

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caerus's picture

they won't...ther's nowhere else to go

nope-1004's picture

The whole thing is a ponzi, supported by the US military.  The fed is screwed because as foreigners move away from the dollar and Treasurys, fiscal responsibility lands back on US shores.  OMG... can't have that, now can we!!  That scenario guarantees a dollar revaluation because the US is a social state driven by consumption, not production.


Timmay's picture

What happens if they dump faster than we pump? Timing is everything.

knukles's picture

The olde "One Lump or Two?" dilemma!

MalteseFalcon's picture

"and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace"

Easy answer.  Using our military on China or Russia is problematic.  Everyone else gets the stick.

Captain Debtcrash's picture

If this selling becomes the beginning of a bond market rout, what will people turn to when they are just now realizing that stocks are risky again.  Precious metals will have their day in the sun soon enough, as long as you're patient. 

Dutti's picture

This story is too much of a unlikely "what if".

What is more likely is, that EM countries that have taken on debt in US$ will have to buy $ (to pay back interest and debt), thereby bidding it up and lowering $ interest rates. The US stock market will rise again.

ThaBigPerm's picture

It looks like the jumping has started




And what would they buy USD with?  Their rapidly collapsing currencies?  Or by selling their rapidly collapsing commodities into a down global market?

Dutti's picture

"And what would they buy USD with?  Their rapidly collapsing currencies?"

Yes, they print some more of their rapidly collapsing currencies or sell some PM or other assets (if they have any) or they declare default...

Save_America1st's picture

Ironic use of the words "dump" and "treasurys" together, don't you think?


I don't own any (even though the gov-scum says I "owe" hundreds of thousands of thin air debt because fo them), but I would certainly take a dump on them.  Or clean up a dump with them ;-)

Cuz a big fucking dump is all they're really worth anyways.

philipat's picture

Until it all collapses, The Fed just prints more digits, creates more "Swap" arrangements with other CB's and has them buy more Treasuries such that there is always a ready Buyer for China's dumped Treasureies AND it can all be kept "Off Balance Sheet".??

realmoney2015's picture

China, as of know, has us by the balls. They own our debt. They (most likely) have more gold than us. We have a HUGE trade deficeit to China. We must remember that the coming coolapse is not China's fault. Our Federal Resrve and government got us into this mess. DO NOT LET THEM TAKE US INTO ANOTHER WAR TO GET THE BANKERS THEIR "OWED" MONEY.

We need people who are free-trade non-interventiaonlaist, not warhawks in our political offices. Trump wants us to ivade the middle east and take their oil!!! He wants to demand China around, even though they have the upper-hand currently. He wants to lockdown the country and bring us to more war. 

Jeb, Hillary, Sanders, Carson, etc. all want more war. The wars are nothing but banker's wars. Don'yt let them implant your minds with thoughts that China is behind the coming (occurring) financial meltdown!

realmoney2015's picture

Of course there is ONE candidate (again) that is a free-markets, anti-fed, non-interventionalist, balanced budget, cpro civil rights kind of guy. 

He has filibustered on drones. He stood up to the TSA. He has a plan to eliminate the IRS and balance the budget. He wants to end all foreign aid. He is a constintutionalist, which means CONGRESS, not the President has the power to declare war, he does beleive Snowden should be hung, he wants to audit and end the fed.

If you dont know, I'm talking about Rand. I agree with him on 99% of the issues. That's why I am donating half of every sale of my candles with silver coin prizes to his campaign: https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu

Half the slae price of candle sold now through September 7th, will go to support Rand's moneybomb on September 7th!

End the Fed. End the IRS. End the Wars. End the Spying. End the drug war. 

847328_3527's picture

I agree with the Captain. Several Chinese friends I know told me they are moving out of their RMB holdings and into gold. Evidently in China you can buy gold through your bank and get a passbook just like a savings account except the bank holds the gold for you. Some of them are doing the 50-50 thingy buying 50% physical and storing it, and 50% passbook gold held by Bank of China or some other big bank there.  But they are afraid of a 20-30% devaluation in their RMB cashola.

China's banks seem much more enthusiastic about gold then in the West and the Chinese gubmint encourages buying gold.

I wonder when the USA banks will start selling gold if ever?

philipat's picture

Fear not, the Donald will change all this. Presumably by either passing laws to stop Corporations offshoring jobs (Which would result in the same Corporations moving offshore themselves) or by imposing large tariffs on imports from China (which would be against WTO rules and would lead to higher prices for most goods).

Dutti's picture

Yes, the Donald also said that he would impose a 35% duty on imports by FORD, should they build a factory in Mexico instead of in the US. Voters like to hear that, it's good for jobs. I only wonder how he would pull that off with the North American Trade agreement in place?


Richard Chesler's picture

"These fucking Jews are thieves, they are liars, they are mother fuckers, and it's time we took care of these bastards." - Bobby Fischer.

realmoney2015's picture

Ugh...you do not understand free markets. Its mainly the tax code and the fed that is driving jobs overseas. More regulations and tarriffs only mean higher prices for consumers.

If we greatly lower the corporate tax rate from the crazy 35% to be at least one of the lowest (most free) in the world, corporations would be flocking back. If we cut back on regulations that make it harder and more expensive to business in America, then our jobs would stay here. If we abolish the IRS and make taxes easier, plus give workers back some of the payroll tax, we will all have more money to spend on goods. If you end the fed, people could actually save money that stores value, instead of an ever decreasing dollar. 

If only there was candidate that had a plan to do all this...Oh wait its RP once again!

philipat's picture

Agreed to an extent but would you really vote for someone who fucked over his own Father, who is by far intellectually superior anyway? If he can't be trusted to respect his own Father, can you trust him? No, I didn't think so...........;

OC Sure's picture





Come on, ZH! Ask EYE-OPENER, JAW-DROPPING questions!


Please don't become a lapdog!


Hint - There is no treasure left to manage. They are issuing "plunders."

MontgomeryScott's picture

I gave you a 'greenie' because you are discussing the reality of the situation (NOT BECAUSE YOU ARE TRYING TO SLAM THE TYLERS FOR ATTEMPTING TO POINT OUT THE OBVIOUS IN A RHETORICAL QUESTION). Careful, Orange County.


This is a 'no-brainer'. You're fucked, they're fucked, everyone's a fuck-fucked. Carnage economically, followed by global thermonuclear war. Riots, martial law 'scenarios', wives whining about the fact that they can't buy tampons, unruly children punching holes in their bedroom walls because their I-phones stopped WERKING, Erin Burnett finally showing her A-cups in an attempt to gain viewership on PMSNBC, Cramer doing a public suicide, and A STANGE GLOW from 50 miles away followed by a shockwave that breaks all the windows in your tenamant building. Banks closed, credit lines suspended, Spics and Jigs running loose in gangs shooting 'whitey', Hillary masturbating and slavering, Draghi trying to escape with all the loot on Hitler's Gold Train, The 'rich and famous' banging on the iron doors of 'Crystal Palace' trying to get in, Stackers LAUGHING and CRYING at the same time (because they TRIED TO WARN YOU, but you WOULDN'T listen), and all kinds of stuff.

In CONUS, it's TEOTWAWKI. HERE is a video that will familiraize you with the REALITY of what IS happening:


Quit talking TRASH about the Tylers.

I guess they did their job, though. They got YOU to wake the fuck up and LOOK AT THE REALITY.

OC Sure's picture



Thanks. But the Tylers know I appreciate them from way back when when I amicably referred to this locale as cyber-delphia.

What I do not appreciate, and this is no fault of theirs, yours, or others, that peeps LOOK at reality. 


The difference is GAZING at totem poles or tearing them down!

MontgomeryScott, ZH, TEAR DOWN THE TOTEM POLES! (...pretty please with sugar on top!)

MontgomeryScott's picture

I tear them down, but I, you, and 'Tyler' are only ONE (individually).

I'll take it one further, though.

At the end of the day, I still STAND. I have set a course, and have not wavered from it (wherever 'the journey' and the Master of my Creation decides that I should travel to).

My 'understanding' is like looking in a dark mirror. The evils that I have comprehended and are being led to understand far outwiegh any philisophical arguments about the great 'what-if' arguments that are posted here (or on ANY OTHER websites, or in the global realm of human comprehension as you have been led to believe 'it is').

The comprehension of REALITY is but a cornerstone on what you describe as 'understanding'; but it is simply a stepping-stone of the various abilities that humans have at their disposal (if they are not too afraid or cowed by the PTWTB to take the next steps).

Cultures around the world, historically, have carved or etched symbols in dead tree wood to 'mark their worth'. Tally-sticks and Totem poles are but TWO examples. 'Hey, Mr. Tally-man, tally ME BANANA! (daylight come, and me want to go home)'.

Here's a little classical music from Harry Belafonte, to ease the pain:



With understanding and comprehension of reality, responsibilities are heavy and apparant.

Tall Tom's picture

If you have not figured it out most of us are Tylers on ZH.


And together we stand more powerful than you might give us credit...as one.


We hone our fighting skills against one another so that we will be an invincible army against the Forces of Darkness when it all shall count.


We are anonymous. We never forget. We never forgive.


Long live Fight Club.


May God bless Montgomery Scott...a Tyler. 

Luc X. Ifer's picture

Huh?! It is not a question of *IF* it is a question of *WHEN* - and then you going to see what of a gigantic pile of treasury dunk will be dump'ed :)

And the *WHEN* is not far, it is much closer than most think. You think China's financial operations werent observed under microscope and disected by everybody in the last

months? You must be kidding :) ... 

RafterManFMJ's picture

So instead of using the Treasuries to buy mines, ports, gold, oil, farmland, real estate, and technology, these imbeciles are pissing it away down a rat hole, burning it in their Plunge Protection Team operations? How fucking stupid can you be?

New_Meat's picture

prolly' not stupid, prolly' necessity.

Gotta' find what is compelling this behaviour


Dutti's picture

The chinese are not stupid. They also buy ports (in Greece), gold, farmland in Africa etc., but they need to balance what they're buying against the possibility of civil unrest.

Tabarnaque's picture
The question here is not hypothetical. I read about one month ago that Thailand had to draw down its Fx reserve for the first time in years in order to defend the Thai Bath. This means: Thailand sold US treasuries to defend the bath, just like China does the same to defend the Yuan. I am just speculating for fun here. What if the Fed HAS to raise rates simply because there is such a massive dumping of US treasuries across the world that it can no longer defend sub 2.40% on the 10 years?? I mean China and other countries are massively dumping treasuries do defend their national currencies. Then who is on the "buying" side of this massive liquidation of US treasuries? The Fed MUST have a massive stealth QE program in order to absorb such a large quantity of US treasuries. And maybe they are overwhelmed by that and have no other option but to let interest rates go up as the US treasury dumping goes on.
Dutti's picture

That means you can profitably sell the Thai Bath against US$, becasuse they will not be able to defend it indefinitely.

Tabarnaque's picture

Their official objective is to implement an "orderly" depreciation of the Thai Bath. They are not looking at keeping a fix peg but to slow down and smooth out the depreciation.

PeakOil's picture

Sorry to nit-pick: a "bath" is something anyone silly enough to still be in these "markets" will surely take. Sooner not later.

"Baht", THB,  is Thai currency.

Tall Tom's picture

As satire (which you actually understood the concept of why they were calling a bath) flies over yer head.


Now go and earn ye some Monopoly Money.

bahaar's picture

"Then who is on the "buying" side of this massive liquidation of US treasuries?"


All the pension funds and US retirees who were forced to buy stocks for yileds will dump stocks and buy the treasuries.  Remember China is dumping US treasuries not because they've lost faith in the US$ but to defend RMB and stem capital outflow.  All the capital which flowed into China despite severe undervaluation of RMB when China was growing is now fleeing and RMB is getting trashed. 

libertrue's picture

QE4 will be needed for this, the Fed spent $3.7T from QE2 and QE3 buying up US treasury bonds. 90% of all UST bond purchases in 2012, 71% in 2013, and 80% in 2014. Looks like they're going to have to gobble up a LOT more.

Seer's picture

"Possibility" of unrest?

The Chinese, though not alone in the insanity, have pushed "growth" to the max.  Given that perpetual growth on a finite planet is NOT possible, then, surely, the track of growth can ONLY lead to "civil unrest."  But... we KNOW that govts' big trick is to distract and blame others (pretty basic human behavior, one that's plenty exercised here too), and that this path culminates in a lot of blood spilling.

Given the game we're playing no one (or group) is necessarily "stupid."  The stupidity lies with the game: the premise of perpetual growth on a finite planet is neverr questioned.

Urban Redneck's picture

Which came first- the chicken or the egg?  and is it "necessary" in terms of short term need or long term planning goals

Which came first- the CNY currency crisis or dumping UST?  

On a long enough timeline, the egg had to come first.

1) China dumped its Agency debt to UST taxpayer bagholders (along with Russia and thanks to Hank P & his "term sheet")

2) China moved away from the long end of the UST curve

3) China stopped acquiring new short term UST even though their F/X reserves have continued to grow

4) China started the unloading of its remaining inventory (through the slant eyed Belgians)

Then we finally have a convenent "crisis" in appreciating CNY and falling equities

6) China acelerated unloading of its remaining inventory (with fear trade bagholders rushing to prop up prices for the Chinese)

What did Rham say about a crisis???


McCormick No. 9's picture

This is simple. When you need money, you sell shit that you have to get the money. I think the econ term is "liquidity". Treasuries are easy to sell for money. Easier than, say, an entire ghost city. What do the Chinese need the money for? What do most people need money for? Blow, hookers, and gambling debts.

It really is this simple, despite all the complicated jargon, graphs, and acronyms.

Urban Redneck's picture

Except "you" don't have a printing press (or swap lines) and "they" do.  This was their choice.  Why?

FreedomGuy's picture

You can get most of those things at a steep discount right, now, too. 

hailhillary's picture

Russian military?   Pffffffffft.   Other than nuclear weapons, I just don't see the threat.  Name one war where Russian military equipment stood up to its western counterpart and won.  I'm waiting........

Watch RT and their Speznaz competitions.   Their soldiers are a joke.  They look like undisciplined kids.  They can hardly stand in parade formation.  Also look at stories and pictures of those Russian servicemen killed around Donesk.  Then watch our guys in Iraq, especially in Fallujah.  Our army is battle tested, Russia, not so much.

New_Meat's picture

the "correlation of forces" is a local thing with a time dimension, don't cha' know.

- Ned

MontgomeryScott's picture

Respectfully submitted for your approval, Mr. Styles:

One 'Nazi impersonator' who wishes the ZH readers to focus on an opponent who was beaten into economic submission in 1989 (the OLD CCCP/USSR).

The wish to re-live the 'glory days' in the guise of rallying 'patriotic support' within the controlled masses of the occupied States of the CONUS is still STONG in this one.



'Dr. Who' evacuated the planet a long time ago, by the way. WE are METALUNA, now.

Kina's picture

That went right over my head. No idea what you mean.

MontgomeryScott's picture

NO, it's NOT, unfortunately.

THIS is a paid government troll college student from HAIFA making his quota by posting on sites such as 'Zero Hedge', trying to talk total bullshit about the reality of the situation.

Ask this Zionist FUCK about the 'Iranian Nuclear Threat'; just to see if I'm wrong.

There are TWO factions working here on the internet. The 'Nationally Oriented', and the 'Non-Systematic Opposition'. BOTH are BOLSHEVIK, and BOTH are from the LOST TRIBES (Ashkenazim and Khazarim). 'Soft socialists' and 'Totalitaian socialists', but the goal is the SAME. MISDIRECTION and PROPAGANDISTIC DIATRIBE is their primary tool in the war of information.

HOW MANY THERMONUCLEAR WARHEADS does ISRAEL ACTUALLY HAVE, by the way? I wonder if he is an 'art student'; or if he works for 'Urban Moving Systems' and is just logged on to DOCUMENT THE EVENT.