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Primary Dealers Quietly Brace For Impact: Total Dealer Treasury Holdings At Record High

Tyler Durden's picture


While the rest of the world is conveniently distracted by events in Europe, where conventional wisdom dictates that even an all out default of Greece would be manageable, whatever that means, the smart money in the room - the world's now 21 Primary Dealers (ex MF Global, whose CEO is "almost", but not quite, about to be prosecuted for the theft of billions in client funds) has been quietly bracing for impact in the only way they know - buying up Treasurys. In fact, according to the US Trasury's weekly update, in the most recent week ended February 8, 2012, Primary Dealer Treasury holdings of Dealers surged to an all time high of $102 billion, a whopping increase of $37 billion on the week, which matches only the surges seen during the post end of quarter window dressing discussed extensively before. The driver were exclusively bonds in the "Bills" and "Under 3 Year" category, which rose by $37.7 billion. As a reminder, courtesy of ZIRP through 2014, bonds with a sub-3 Years maturity are the functional, and liquidity equivalent, of Bills - or cash equivalents from a liquidity standpoint, with the added benefit that these are repoable at a moment's notice, to the Fed or anyone else. The last time we have seen such a dramatic increase in Dealer Bill and Coupon concentration was in early 2009 when the world was ending and when Dealers went from zero Bill holdings to tens of billions in Bill holdings overnight. These holdings only declined as QE1 starting to improve risk conditions, and dropped further in the aftermath of QE2. This time, there is no backstop from the Fed, at least no public one. Which means that, for all intents and purposes, Dealers are hunkering down in anticipation of something that affords maximum liquidity yet is not stocks.

Full breakdown of Dealer UST holdings by maturity bucket (ex-TIPS).

And for those who suggest that this is merely a yield play, we have chart 2, which shows Dealer corporate bond holdings- it is at multi-year lows, and quite lower than the frothy days of the summer and fall of 2008.


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Fri, 02/17/2012 - 15:18 | 2170866 CvlDobd
CvlDobd's picture

What is this yield you speak of?

Fri, 02/17/2012 - 15:25 | 2170892 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Would you like the real/inflation adjusted rate, or the nominal rate?

And would you care to see this vs the cost benefit of holding gold?

Fri, 02/17/2012 - 15:26 | 2170899 Bring the Gold
Bring the Gold's picture

I feel like I've been reading a "crash is imminent!!!!!" story for 2 + years...oh right because I have. Just crash already!!!

Fri, 02/17/2012 - 15:30 | 2170912 SheepDog-One
SheepDog-One's picture

Cant let THAT happen...if the stock markets actually crashed then the sheeple would come string us bankers and politicians up by our necks!

Fri, 02/17/2012 - 15:34 | 2170928 redpill
redpill's picture

PDs buy as they're told.

Fri, 02/17/2012 - 15:36 | 2170931 SheepDog-One
SheepDog-One's picture

PD's must be the type of guys who go home and get kornholed by their wives.

Fri, 02/17/2012 - 15:38 | 2170946 Manthong
Manthong's picture

Well then, what are they selling?

Fri, 02/17/2012 - 16:24 | 2171168 economics1996
economics1996's picture

If you know the answer please let us know.  

Fri, 02/17/2012 - 20:23 | 2171914 TheMerryPrankster
TheMerryPrankster's picture

They just reduced bond circulation by 6 trillion usd$.


Italian police said on Friday they had seized about $6 trillion worth of fake U.S. Treasury bonds and other securities in Switzerland, and arrested eight Italians accused of international fraud and other financial crimes.


The operation, co-ordinated by prosecutors from the southern Italian city of Potenza, was carried out by Italian, Swiss and U.S. authorities after a year-long investigation, an Italian police source said.


It began as a investigation into mafia loan-sharking, but gradually expanded as prosecutors used telephone and computer intercepts to unearth evidence of illegal activity surrounding Treasury bonds.


Sat, 02/18/2012 - 05:59 | 2172574 rayduh4life
rayduh4life's picture

If only.

Fri, 02/17/2012 - 15:35 | 2170926 TruthInSunshine
TruthInSunshine's picture

"If you're in a monetary union utilizing a common currency that's controlled by the fractional reserve banking cartel, nobody ever tells you that they're going to kill you. It doesn't happen that way. There weren't any arguments or curses like in the movies. So your murderers come with smiles. They come as your friends, who seemingly want to help you, and they always seem to come at a time when you're at your weakest and most in need of their help."

Fri, 02/17/2012 - 16:37 | 2171210 AlaricBalth
AlaricBalth's picture

Thanks Henry. Agreed!

Fri, 02/17/2012 - 16:32 | 2171198 willien1derland
willien1derland's picture

Slow Motion Crash...Kinda like Al Cowen driving the White Bronco...but instead of OJ its the entire Western economy...

Fri, 02/17/2012 - 15:41 | 2170955 BW
BW's picture

In March of 2009 and September 2008, the PD's were dumb money.

Fri, 02/17/2012 - 15:20 | 2170867 AlaricBalth
AlaricBalth's picture

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world - no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” 
Woodrow Wilson


Fri, 02/17/2012 - 15:19 | 2170872 kito
kito's picture

all is know is that "grease" is very slippery, transfers easily and leaves a nasty stain........................

Fri, 02/17/2012 - 15:35 | 2170916 SheepDog-One
SheepDog-One's picture

Not Astro-Glide. Water washable.

Fri, 02/17/2012 - 15:44 | 2170971 kito
kito's picture

if greece was only water washable...............

Fri, 02/17/2012 - 15:19 | 2170873 trade the day
trade the day's picture

At least someone is preparing for the worst. 

Fri, 02/17/2012 - 15:21 | 2170878 Turd Ferguson
Turd Ferguson's picture

The PDs are being forced to buy shorts because The Fed, through ZIRP, is selling shorts. If the PDs (or someone else for that matter) weren't there to buy, the yield curve would invert.

Fri, 02/17/2012 - 15:28 | 2170909 AgShaman
AgShaman's picture

Hahaha, wanted to be a Primary Dealer?

Then we have some products for you to purchase....

"We think you should participate"

Fri, 02/17/2012 - 15:30 | 2170915 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

OT2 by proxie of the Banking Houses, since China and Russia et al have been dropping USTs like hot cakes.. 

Ah, the Fiat Ponzi at its finest!

Fri, 02/17/2012 - 15:22 | 2170880 GeneMarchbanks
GeneMarchbanks's picture

'This time, there is no backstop from the Fed, at least no public one.'

Having a hard time believing that. I'm sure Bloomberg will run a story six months from now about a backstop. That's if the rubble has been sifted through by then.

Fri, 02/17/2012 - 15:21 | 2170882 blu
blu's picture

So does this mean my AAPL ultra-long-with-extra-longness play was a wrong move? I felt sure that was a winner.

Fri, 02/17/2012 - 15:38 | 2170948 SheepDog-One
SheepDog-One's picture

As long as you added in full-margin, you should be OK.

Fri, 02/17/2012 - 15:26 | 2170900 Fortunes Favor
Fri, 02/17/2012 - 15:27 | 2170902 fourchan
fourchan's picture

bend over, here comes he 4th reich.

Fri, 02/17/2012 - 15:26 | 2170903 q99x2
q99x2's picture

Historically high volume in TVIX this week.

Fri, 02/17/2012 - 15:28 | 2170905 A DUDE
A DUDE's picture

There is a solution to all of this, gentlemen, and though it might involve Kitty-Lick-backed securities (KLBSs) to limit the risk of non-performing sessions, there is a new movement that every one of you could get behind, get in front of, or as you will. It's called the International Lick Your Lady's Kittly Week and it starts on 29 February 2012. Here are more details:

If anyone here even begins to comprehend what the above means then they're too smart to be here.

Fri, 02/17/2012 - 15:53 | 2171011 the not so migh...
the not so mighty maximiza's picture

I Lick My Lady's Kittly when ever she demands it.  I bring my lunchbox and stay the day.

Fri, 02/17/2012 - 16:11 | 2171104 A DUDE
A DUDE's picture

You, sir, are a hero and an example to all of us. Like the lunchbox image.

Fri, 02/17/2012 - 20:30 | 2171929 TheMerryPrankster
TheMerryPrankster's picture

proper spelling is actually Klittily.

Fri, 02/17/2012 - 15:27 | 2170907 Big Ben
Big Ben's picture

After a more than a year of preparation the system MAY be able to handle a Greek default without breaking. But if there is even a tiny bit of strain, it will call into question whether Portugal, Italy and Spain can also be handled. And things could start to go downhill rapidly from then.

Fri, 02/17/2012 - 15:33 | 2170921 SheepDog-One
SheepDog-One's picture

Aw come on the skyscraper of cards is only 400 stories tall! Looks pretty stable from here, surely we can add on a few more levels to the top of this thing.

Fri, 02/17/2012 - 15:29 | 2170910 bbq on whitehou...
bbq on whitehouse lawn's picture

What happens to banks if they can no longer sell CDS?

Can the government buy CDS on its own debt?


Fri, 02/17/2012 - 15:56 | 2171020 tobinajwels
tobinajwels's picture

Good question but I don't know the answer? anyone have any idea? my head is starting to hurt!

Fri, 02/17/2012 - 15:57 | 2171025 Dr. Richard Head
Dr. Richard Head's picture

The Banks are the Government, the government is the banks. 

For next week's lesson we will delve into the subject of unicorns that shit skittles. Class dismissed.

Fri, 02/17/2012 - 15:30 | 2170913 youngman
youngman's picture

Anyone stocking up on Gold or Silver....nope...prices down today....excuse me...the Chinese are....and me....

Fri, 02/17/2012 - 15:33 | 2170922 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

What are these golds and silvers you speak of?

Fri, 02/17/2012 - 15:34 | 2170924 SheepDog-One
SheepDog-One's picture

Just got a couple hundred more rounds of Golden Sabres and some Silvertips too myself.

Fri, 02/17/2012 - 16:09 | 2171090 roadhazard
roadhazard's picture

I cleaned my guns.

Fri, 02/17/2012 - 15:32 | 2170918 trebuchet
trebuchet's picture

could also reflect $Yen carry trade

- no it wont this is the PD book - duh

Fri, 02/17/2012 - 15:37 | 2170941 SheepDog-One
SheepDog-One's picture

Preparing for the worst, but all is well down on the full-retard market floors for today, of course.

Fri, 02/17/2012 - 17:16 | 2171387 valley chick
valley chick's picture

I keep rereading trying to understand since I am new at this.  My head is spinning ...hoping that someone could explain further.  Is this possibly going to create the Credit Event and start a massive selloff which some folks will lose it all ?

Fri, 02/17/2012 - 15:38 | 2170947 ekm
ekm's picture

I don't know if anybody noticed, but the Fed is hungry for more primary dealers. Four canadian banks were added a short while ago and nobody noticed. Here in Canada, no mention, nothing.

Lehman is kaput. MF global is kaput. Big 5 are basically insolvent.

Wells Fargo declined to the Fed to apply. Not interested.

I think at least 2 are going to be wiped out with the collapse very soon. I can't explain Fed's hurry to lure more suckers in a different way.

Fri, 02/17/2012 - 15:48 | 2170981 jimmyjames
jimmyjames's picture

Four canadian banks were added a short while ago and nobody noticed. Here in Canada, no mention, nothing.


Do you have a source for that-I can't find anything--tia

Fri, 02/17/2012 - 15:51 | 2170995 ekm
ekm's picture

I'm at work but I did the search for you.

Correction: 2 added, totally 4, or probably 5. My boss is right behind me.

That's all we have 5 banks.

Fri, 02/17/2012 - 15:55 | 2171015 Village Smithy
Village Smithy's picture

Try here

Looks like BMO and BNS are the new ones and that was a surprise to me, CIBC dropped its application.

Fri, 02/17/2012 - 15:57 | 2171026 ekm
ekm's picture

Thx a lot. I was sure I saw CIBC when I checked in october.

Fri, 02/17/2012 - 15:39 | 2170952 Seasmoke
Seasmoke's picture


Fri, 02/17/2012 - 15:40 | 2170957 fonzannoon
fonzannoon's picture

Dow 13k at the close today. Celebrate. Talk all weekend about it.


Fri, 02/17/2012 - 15:45 | 2170967 AccreditedEYE
AccreditedEYE's picture

Good to see somebody has an eye for value after those 3rd world and 2nd rate world powers walking away from a good, sound and safe investment.. <sarc> Seriously though, absolutely hysterical as they'll make money shorting into the momo's longs up here then catch the profits on the way down with equity and fixed income.... all while making the Fed do their bidding to launch the next QE program. Damn, it's good to be a bankster.

Fri, 02/17/2012 - 15:47 | 2170982 LawsofPhysics
LawsofPhysics's picture

just wait until these dealers sell that paper for gold.  Endgame bitchez, and it will be one hell of a wealth transfer.

Fri, 02/17/2012 - 15:54 | 2171012 espirit
espirit's picture

Probably be on March 8, when the internet goes down, lol.

Fri, 02/17/2012 - 15:51 | 2170996 Downtoolong
Downtoolong's picture

This time, there is no backstop from the Fed, at least no public one.

Yea, it kind of makes me wonder if they know something the rest of us don't about what the Fed is going to do next, doesn't it?

Fri, 02/17/2012 - 15:56 | 2171019 Clockwork Orange
Clockwork Orange's picture

This is not preparation for anything at all.

There is nobody real left to buy this ponzi garbage, not with any sort of respectable, constrained currency anyway.  So of course the PD criminals will be the buyers of last resort, to help out the lender of last resort. 

Fri, 02/17/2012 - 16:10 | 2171097 TheHillrat
TheHillrat's picture

Rick Santelli just talked about this right now!!

Fri, 02/17/2012 - 16:33 | 2171201 youngman
youngman's picture

So the PD´s are stocking up on Treasuries as they think when the SHTF that everyone is going to run to the saftey of the US treasuries....well they will be suprised when everyone runs to APPLE stock....that my friends is the real safe

Fri, 02/17/2012 - 16:34 | 2171206 dcb
dcb's picture

the last couple weeks of a quarter, the big bous have to get ready to fake their financial reports, so they often loan up on treasuries. then comes the start of next quarter they can start to dump and put back into the market.  october was good, jan good, into feb as well. in general try to position towards start of next quarter for going up again. either way we are at the top of the weekly trend line so I will take some profits. I'd like to see more tbt/tlt correllation in regards to market movement. in theory money should have to come out of one asset class to move up another. but not when bernanke runs the presses, so nothing makes sense anymore.

Fri, 02/17/2012 - 17:23 | 2171420 paul_Liu
paul_Liu's picture



but why are the stocks continuing to go high?

we shorts are suffering for 5 months.....

Fri, 02/17/2012 - 17:44 | 2171512 whatsinaname
whatsinaname's picture

'cos now the Japs have re-loaded their printing presses ?

Full speed ahead !!

Fri, 02/17/2012 - 18:02 | 2171567 spencer
spencer's picture

the first graph is very bullish. It shows an obvious inverse correlation with market bottoms. Highest holdings in time of a market reversal in March 2009 and then lowest holdings during market reversal between April and July 2011 and NOW same as during significant bottom in 2009. It make me go Hmmmmmmmm.

Maybe time to close my shorts, damn it.



Fri, 02/17/2012 - 23:48 | 2172293 FreeNewEnergy
FreeNewEnergy's picture

Spencer, I don't know if you can infer anything from that chart as the PD max holdings were at a market bottom in '09 and we're close to a market top now, with holdings very high.

AFAIK, the correlation has broken down, if it ever existed at all. I chalk it up to manipulation and too much QE for anybody's damn good. The global financial system is broken - or breaking apart - so assumptions from an historical standpoint must be tempered wiht that knowledge in mind.

Hold your shorts and hold onto your shorts, but don't get greedy.

Sat, 02/18/2012 - 02:12 | 2172435 spencer
spencer's picture

no disrespect - I am in and out - because holding shorts is a losing game here mr. Shorts can't make any money in this environment. I am short - but not greedy.

Sun, 02/19/2012 - 21:01 | 2176314 q5251355
q5251355's picture

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