Saudis, China Dump Treasuries; Foreign Central Banks Liquidate A Record $375 Billion In US Paper

Tyler Durden's picture

One month ago, when we last looked at the Fed's update of Treasuries held in custody, we noted something troubling: the number had dropped sharply, declining by over $22 billion in one week, one of the the biggest weekly declines since January 2015, pushing the total amount of custodial paper to $2.805 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week's update, foreign central banks continued their relentless liquidation of US paper held in the Fed's custody account, which tumbled by another $14 billion over the course of a week, pushing the total amount of custodial paper to $2.788 trillion, a new post-2012 low.

Today, to corroborate the disturbing weekly slide in the Fed's custody data, we also got the latest monthly Treasury International Capital data for the month of September, which showed that the troubling trend presented one month ago, has accelerated to an unprecedented degree.

Recall that a month ago,  we reported that in the latest 12 months we have observed a not so stealthy, actually make that a massive $343 billion in Treasury selling by foreign central banks in the period July 2015- August 2016, something unprecedented in size.

Fast forward to today when in the latest monthly update for the month of September, we find that what until a month ago was "merely" a record $346.4 billion in offshore central bank sales in the LTM period ending  August 31 has - one month later - risen to a new all time high $374.7 billion, or well over a third of a trillion in Treasuries sold in the past 12 months. 

Among the biggest sellers - on a market-price basis - not surprisingly was China, which in August "sold" $28 billion in US paper (the actual underlying number while different, as this particular series is adjusted for Mark to Market variations, will be similar), bringing its total to $1.157 trillion, the lowest amount of US paper held by Beijing since 2012.

It wasn't just China: Saudi Arabia also continued to sell its TSY holdings, and in August its stated holdings (which again have to be adjusted for MTM), dropped from $93Bn to $89Bn, the lowest since the summer of 2014. This was the 8th consecutive month of Treasury sales by the Kingdom, which held $124 billion in TSYs in January, and has since sold nearly 30% of its US paper holdings.

As we pointed out one month ago, what is becoming increasingly obvious is that both foreign central banks, sovereign wealth funds, reserve managers, and virtually every other official institution in possession of US paper, is liquidating their holdings at a very troubling pace, something which in light of the action in the past week appears to have been a prudent move.

In some cases, like China, this is to offset devaluation pressure; in others such as Saudi Arabia, it is to provide the funds needed to offset the collapse of the petrodollar, and to backstop the country's soaring budget deficit. In all cases, it may suggest concerns about a spike in future debt issuance by the US, especially now under the pro-fiscal stimulus Trump administration.

So who are they selling to? The answer, at least until last month, was private demand, in other words just like in the stock market the retail investor is the final bagholder, so when it comes to US Treasuries, "private investors" both foreign and domestic are soaking up hundreds of billions in central bank holdings. As we said last month when we observed this great rotation in Treasuries out of official holders into private hands, "we wonder if they would [keep buying] knowing who is selling to them." Well, this month it changed, and after private investors had been happily snapping up bonds for 4 straight months, in September "other foreign investors" sold a whopping $31 billion, bringing the total outflow between public and private foreign holdings to $76.6 billion, the second highest number on record!

Meanwhile, while just three months ago yields had tumbled to near all time lows, suddenly the picture is inverted, and long-yields are surging on concerns that not only will the BOJ, the Fed, and maybe even the ECB will soon taper their purchases of the long end, but that Donald Trump is about to unleash a $1 trillion debt tsunami at a time when the Fed will not be available to monetize it.

While it is unclear under what conditions foreign buyers may come back, one thing is very clear: as of this moments the selling strike not only continues but is accelerating, and should the foreign liquidation of Treasuries fail to slow, Yellen will have no choice but to forget about hiking rates and focus on QE4 instead.

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Grandad Grumps's picture

Obama is sucking it up pretty bad in his last few months in office.

Truther's picture

Sucking up on something....Bad

pathosattrition's picture

this is what the death of the dollar as the word's reserve currency looks like

Citxmech's picture

Goldfinger:  "No Mr. Bond, I expect you to die."

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Citxmech Nov 16, 2016 7:06 PM

Will the final owner of all this shit be the "ONE BANK" or "ONE BAG-HOLDER"?

tmosley's picture

Will be very interesting to see how this selling behavior accelerates, decelerates, or remains steady in November and December.

Does the world fear a Trump debt renegotiation? They should.

Dabooda's picture

Yep. 

Blame it on Trump:

No matter what he's said or hasn't said, the guy has declared bankruptcy three or four times; clearly he believes in it. 

The idea of the US Government declaring bankruptcy hasn't really been discussed.  Too bad.  It's a GOOD idea.  Apparently the Chinese & Saudis realize this too, and are very afraid Trump has plans . . .

The_Juggernaut's picture

Doesn't Trump get to blame his predessesor for the next five years like the last guy did?

Dabooda's picture

Nope, that only works for liberals.  Trump will be blamed for everything from now on, even BEFORE he takes office.

PrayingMantis's picture

...> Saudis, China Dump Treasuries; Foreign Central Banks Liquidate A Record $375 Billion In US Paper
 
 ... Soros, is that you again? >>> "The 60 Minutes Interview George Soros Tried To Bury!" >>> https://www.youtube.com/watch?v=p8Ux5b6YM9A

SafelyGraze's picture

Foreign Central Banks Liquidate A Record $375 Billion.

tov meod!!!

more for the rest of us!!!

JamesBond's picture

Liquidated T's into fiat dollars.

 

*snicker*

 

 

SoDamnMad's picture

I thought the Saudis were dumping when oil plunged but their budget and high spending was commited for decades on out plus the war in Yemen and Syria are gobbling what revenue has been coming in. Those thousands of princes need their monthly "welfare" checks too. 

medium giraffe's picture

Interesting interview Mantis, thanks for link.

"I cannot and do not care about the social consequences of what i do."

-George Soros

wildbad's picture

shit! are all of these dollars coming home to roost already?

B-Bond's picture

Fitch & Moodys, can we expect a long overdue credit downgrade for a nation $20t in debt.

Place your bets!

Max Hunter's picture

And yet the USD index is over 100.00

Linus_in_W.PA.'s picture

I feel we're a long way off from any default. 

Trump did say that we would not default as we can print money, but I think he knew the downside.

There's a lot of leverage and netotiating to be had before that far end of the spectrum.

We shall see.

You Only Live Twice's picture

This has nothing to do with Trump. It is the result of the prolonged period of low Oil prices. People need less USDs to buy Oil (and therefore less USTs to get dollars), so they are selling. It is the gradual collapse of the Petrodollar System. 

"While it is unclear under what conditions foreign buyers may come back, one thing is very clear: as of this moments the selling strike not only continues but is accelerating, and should the foreign liquidation of Treasuries fail to slow, Yellen will have no choice but to forget about hiking rates and focus on QE4 instead."

QE4 will only make matters worse as it will increase inflation since the debt cannot be spread through the Petrodollar System. Only a sudden hike in Oil prices can reverse this, and it looks unlikely to happen.

tmosley's picture

This has nothing to do with Trump because this data is from before anyone outside of a few dozen million deplorables thought he could win.  Which is why the reaction to his victory will be so interesting.

Arnold's picture

Debt Service, not Debt, is the stated problem.

Increasing taxes, debt roll over, some form of Jubilee, packages of derivative instruments.

So many decisions when I walk into the Casino atmosphere, where I know they are only out to take all my money.

I think I'll find the Bar first, some instant return on investment.

 

Liked your thinking YOLT

BeanusCountus's picture

They said it would never happen, and yet it is happening. Only Q is why the USD is strenthening when this is goin on. Anyone?

JohnGaltUk's picture

The default position when panic sets in is into the dollar (more demand the price goes up), normally into bonds but this time they distrust bonds and I suspect it will turn up in property or equities. No other market in the world is large enough to park large amounts of money.

Yellen will have to start spinning those plate faster

Yukon Cornholius's picture

Hank Scorpio: "And be a very cheap funeral! You're gonna die now."

Kayman's picture

Odd thing that. Selling treasuries, but the dollar keeps rising.

Maybe someone should cotten on to the idea that China and the Sauds HAVE TO SELL treasuries to keep their currencies from collapsing.

Kirk2NCC1701's picture

The "death of the dollar" is rather premature. Yes, it is aging, but its "death" us premature.

You'll see its final breaths when Inflation raises its ugly head and PMs surge into record territory each weak.

Until then it's just more doom porn.  Sorry to upset ppl with facts.

fattail's picture

Spiking to 14 year highs is the death of the dollar??  What happens if the congress says no to the fiscal stimulus,  only tax cuts to tax payers?  None of that stupid infrastrucutre BS?

Mr. Pain's picture

Wait until those dollars come home. It will be a SHTF moment.

thesonandheir's picture

Can Yellen hike rates and launch QE purchases at the same time?

 

It hasn't been done to my knowledge but who knows what these rogue central Banks can do.

LawsofPhysics's picture

Pretty sure that is exactly what the whole "reverse repo" market is about.

 

As I have said over and over, this time is indeed different only in that this time we are talking about a global Weimar...

Shemp 4 Victory's picture

Yow! Hot potato!

As they say, he who panics first panics best...

LawsofPhysics's picture

Yes, but perhaps I can interest you in a financial "product"?

new game's picture

your choice

a) head fake

b) bond bubble bursting, beginning stages

c) a mear flesh scrape, ptb have it all contained with ctrl-alt-qe.xyz

d) stealth buyer via gray acct.-see c.

e) endgame has arrived

Poundsand's picture

Unfortunately I give 99.7% chance it is c.  Just means the cliff at the end gets higher and higher and the coyote falls further and further.

TEOTWAIKI's picture

It's not the fall that kills you...

LawsofPhysics's picture

Life is always stranger than fiction.  I choose d)

"none of the above"

new game's picture

that would be f, as in fucked...

johngaltfla's picture

China has to sell. They have liquidity problems that would make the world freak out if it were truly exposed.

Perimetr's picture

China doesn't want any more stinking toilet paper US Treasuries

Nobody does

And soon they will refuse to accept them as payment for the industrial goods

that we no longer manufacture but are entirely dependent upon

J S Bach's picture

I think this means that noticable inflation is coming to a theater near you soon (all according to the NeverTrump playbook).  Even had Trump lost, this scenario is inevitable.  Hopefully, the ensuing suffering will wake enough sheeple up to the fallacy of fiat-debt-based-currency.

johngaltfla's picture

By mid-2018, I could easily see a 4.5% PCE and 5%+ CPI.

ejmoosa's picture

As soon as one or two industries bite the bullet and start raising prices, there will be an avalanche of price hikes by everyone.

matermaker's picture

We elected a man who has used bankruptcy as a tool and weapon over and over to great advantage.  Who better to do the job?  Do we still have vast resources and agriculture?  relatively clean water?  massive amount of landmass per capita? nuclear weapons and a heavily armed population?  Hold the debt to the rest of the World?

Want to bring the jobs back?   Blow the farker up.   Some nations like Russia, Austrailia, Canada even Mexico will do fine.  Others, like China, India, Europe, the Middle East, not so much.  You would even have an inverse of who 'mattered more' the red states versus the blue states.

I'd be cool with it.  Stuff made elsewhere might be unaffordable, but what I produce would garner a pretty real copper penny.  We retooled this nation quite quickly when WWII hit.   Just a different kind of bomb being dropped.  I assure you that we could get all manner of factories back up and running in no time.  Thin the herd out while at it.  The only places that would truly 'riot' would be those blue spots on an otherwise red map.

scoutshonor's picture

WWII was a long time ago.  I carry the Hamilton pocket watch my old man used in the army air corp.

 

When I take it to get it cleaned I wonder where I will go when my 90 year jewler dies.

 

To retool we would need people that could use tools.  We don't have nearly enough tools--or enough people that can wield them.  One of the big problems with abandoning a manufacturing base is that when you need to reverse that trend you usually have do so quickly.

 

Sadly learning curves don't climb themselves.

matermaker's picture

The 25 year old in 1940 most likely wasn't born or even live with electricity or running water.  My family can vouch for that coming from the Ozarks.  Yet, one great uncle, for example, became the chief engineer for Haliburton's Pacific Rim projects, after the war.  True, modern 25 y/os are much softer, now.  However, it takes much fewer folks to run a factory, as well.    Didn't say it would be easy.  Lots of folks gott'a die no matter how you cut it.  Just like they did in WWII.

matermaker's picture

If things continue as they are going, you will se a different dynamic than the civil war.  For the last hundred plus years, people have been moving from the rural areas to the cities for manufacturing jobs[mostly].  ..As people couldn't make it on the farms.  Similar thing happened in Rome.  Now that manufacturing has collapsed in this nation, you have a rot started in those cities.  It would be incredibly difficult to transplant those unemployed and disenfranchised people back to the country sides and farms.   You basically have rural against urban.  hence the county by county election maps that are a sea of red with spots of bright blue.  If you consume more than you produce, you die, period.

The bright blue spots aren't growing food, aren't manufacturing anything and are sucking up resources exponentially.  This by the way is one facet of the wisdom of the electorial college.

Now....as I am involved in agriculture...   I will tell you that I rarely find any white folks that will work as hard as latins... much less white city folks.  Despite what some will tell you, much of the illegal immigration is fluid.  A dozen undocumented workers crash in a one bedroom apartment and spend all summer picking strawberries.  They send all their cash back home.  Then they go home for winter.  Come back next summer.  I have seen it all my life.  Cutting that out is one way to get a FEW folks out of the urban rot spots.

The only other solution is to bring manufacturing back.   The only way to bring manufacturing back is as Kyle Bass said, "kill the dollar"

It's the end of globalism, basically.   As that is merely 'who can we exploit without actually calling them slaves?'

LibertarianMenace's picture

ANNUAL domestic robot sales (~40,000) are already larger than the populations of some mid size cities. And everything OUR robots produce MUST belong to us.

matermaker's picture

The industrial revolution killed a lot of jobs, as well.  So did the last century.