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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
CvlDobd's picture

What is this yield you speak of?

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?

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!!!

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!

SheepDog-One's picture

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

Manthong's picture

Well then, what are they selling?

economics1996's picture

If you know the answer please let us know.  

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.


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."

willien1derland's picture

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

BW's picture

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

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


kito's picture

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

SheepDog-One's picture

Not Astro-Glide. Water washable.

kito's picture

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

trade the day's picture

At least someone is preparing for the worst. 

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.

AgShaman's picture

Hahaha, wanted to be a Primary Dealer?

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

"We think you should participate"

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!

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.

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.

SheepDog-One's picture

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

fourchan's picture

bend over, here comes he 4th reich.

q99x2's picture

Historically high volume in TVIX this week.

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.

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.

A DUDE's picture

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

TheMerryPrankster's picture

proper spelling is actually Klittily.

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.

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.

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?


tobinajwels's picture

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

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.

youngman's picture

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

Mr Lennon Hendrix's picture

What are these golds and silvers you speak of?

SheepDog-One's picture

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

trebuchet's picture

could also reflect $Yen carry trade

- no it wont this is the PD book - duh

SheepDog-One's picture

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

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 ?

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.

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

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.