Did Foreigners Bail Out The US Stock Market... By Dumping $56 Billion In Treasurys?

Something curious happened recently: for the first time in over a decade, perhaps ever, the US saw a record $25 billion worth of Treasury bond outflows from the Treasury's custodial account in the week ended September 28. Just as curious is that in the past 5 weeks we have seen relentless selling of Treasurys from the same custodial account which, with Treasury International Capital data 3 months delayed, and largely incorrect until its annual revision, is the only real source of recent (and somewhat accurate) foreign activity in US bonds. In fact, starting with the week ended September 7, through last Thursday, foreigners appear to have dumped a massive $56 billion worth of Treasurys (don't take our word for it - check it here, courtesy of the Fed). This is quite disturbing for two reasons. One explanation for this move would be to look back to the Quant crash in early August 2007, which preceded the market's secular (and all time) high, when various quant funds blew up for reasons still not completely known. The reason why this date is important is that it was the catalyst for the next biggest concerted dump of Treasurys, when in a subsequent span of 4 weeks, foreigners sold $47 billion in Treasurys... but at least the market's precipitous move lower was prevented, if only for a few brief months. Also curious is that the recent move is in direct contrast to the Custodial Account reaction to the Lehman implosion in 2008 when 20 weeks of consecutive UST inflows, beginning September 10, saw $300 billion in "safe haven" purchases. So while the market plunge back then was accompanied by a shift into Treasurys, this time around, the biggest market volatility since Lehman has seen a record sequential exodus out of bonds. Which begs the question: did Tim Geithner make a few phone calls, and tell foreigners to dump Treasurys (knowing full well Op Twist was coming and the Fed would backstop the entire curve), and to buy stocks instead in order to prevent the next relapse of the Great Financial Crisis?

Of course, there is a far simpler explanation: the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise - China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived.

Either way, if this is merely a function of money's fungibility (according to , as is all too well known, capital simply shifts from one asset allocation to another), and money was forcefully "funged" from bonds into stocks (with or without the prodding of one Tim Geithner) to create a "natural" bid into the bidless market, expect to see even more bond liquidations should stocks continue sliding lower. That may be a big reason to panic as it means that finally the US has tipped its hand that its survival (read: that of the Russell 2000, thank you Ben Bernanke), is dependent on the generosity of our trade surplus partners.

If, on the other hand, the sell off is completely uncorrelated to any moves in the stock market, then the reason to panic is far, far greater, as it means that the international community no longer perceives US paper as a flight to safety...and has taken the first step to defect in the most important Nash equilibrium in modern history.

Source: H.4.1

Comments

[tedstr]

If you are european bank you are up to your ass in allegators.  Time to start burning the furniture.  You are selling everything thats not nailed down.  Plus the USD is about to return toits march south so we may get a small technical rally over the next 2 weeks

[tedstr]

Don't doubt the Saudis are also heavy buyers of USTs very quietly

[dcb]

talk about a drama queen post. I trade tlt, we are just about at an all time high for this security, at about the 2009 lows, financial stocks are near some of these lows. if that is an indicator or market stresss and bottoming, then it's a good buy indicatpr, so I hyave been buying financial on the dips, and selling my tlt. yeah, I trade it, adn it doesn't matter which way it eventually goes. If you are a foreigner it also pays to dumpt them, take some profits, and rebuy when the yeilds are higher. I own a large muni portfolio, adn am selling at the highs as well. I started unloanding at tlt 115, we are up above 120 th8is is the trade. to make.

I still don't understand why the overall markets are so high when compared to tlt, but that's another story. Looking into it, I focised on financials, and that's where they bmoney vos going.

[marcusfenix]

just because it's sunday and we need a reason to celebrate-

U.S. National Debt Clock : Real Time

gross debt to gdp ratio just crossed 99%

i think we should have an impromptu ticker tape parade to celebrate this milestome

we could use FRN's as confetti...

or should we save that for when we hit 15 trillion in public debt...in a few weeks

things are looking up, especially when up is down.

[High Plains Drifter]

http://en.wikipedia.org/wiki/John_Exter

time to reexamine exter's pyramid..........what is at the point of the spear? who loves you baby..?

signed,

gold bug...

[andyupnorth]

Lovely pyramid.

[Nels]

How does communism fail, unless too much valuable resource is spent trying to compete with a fiat currency?

How do you think the rest of the world stood up to fiat funded British imperialism while it was on a gold standard? They didn't...

Your argument is that nobody could compete with the British on a gold standard, and nobody could compete with the USA when it was off the gold standard and using fiat money.  Do I have that right?

Seems to me that your examples show that nobody can compete with a relatively free market.  

Now, maybe the free market isn't the right answer as to why Britain and the USA flourished for a while..  But it appears that the use of a gold standard or fiat money isn't the deciding factor either.

[prophet]

Maturity

[Justaman]

Timmay to the rescue!

But seriously, didn't that impromptu meeting the PDs had with Timmy a few months ago give them a heads up on "op nipple twist"?  My guess is that the PDs were the ones dumping Ts to go long into stocks because of Timmy's promises to make them whole if they sold now.  Why would foreigners collectively go into stocks when they know the market shenanigans that are going on?  Maybe I am naive about the whole proces but isn't this type of promise to the PDs and foreigners the very definition of pump and dump?  Oh well...

[Buck Johnson]

I totally agree, thats exactly what happened.  They hate Zerohedge because this site and it's OP stories are able to see through the BS and obfuscation of the Western banking system and it's financial instituions.  This game can't go on for much longer and I think many are starting to see this.  Also I can't believe that CNBC have articles that talk about how the Great Depression wasn't as bad as it seemed.  I think they know that real soon they won't be able to hide the depression anymore. 

[karmete]

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