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Record Consecutive Treasury Dump From Fed's Custody Account

Tyler Durden's picture




 

While there were few nuggets worth mentioning in yesterday's H.4.1 update, one item is certainly worth noting. After we pointed out last week when we noted that there was a record monthly dump of Treasury paper from the Fed's custodial account amounting to some $69 billion, the week ended January 4 has seen yet another outflow, this time amounting to $9 billion in US Treasurys. This is the 5th week in a row of foreigners selling US paper, and while it has yet to match the record 6 weeks of outflows from October (discussed here), the consolidated outflow notional is now a record high at $77 bilion, higher than the previous record of $52 billion. Needless to say banks from around the world are repatriating dollars. The question is what they are converting the USD into, and how much longer will the go on for: the last thin the US can afford is a wholesale dumping of its Treasurys. Because as the chart below vividly demonstrates, the traditional diagonal rise in foreign holdings of US paper has not only pleateaued, but it is in fact declining: a first in the history of the post-globalization world.

 

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Fri, 01/06/2012 - 18:28 | 2040850 nope-1004
nope-1004's picture

"More sophisticated diets", I assume.

 

Sat, 01/07/2012 - 00:10 | 2041599 SAT 800
SAT 800's picture

What would the church lady say? "Well, isn't that special". very interesting; don't know what it means.

Sat, 01/07/2012 - 01:56 | 2041709 Hephasteus
Hephasteus's picture

Neither do I but ever since MF global the euro can't stop going down and the dollar can't stop going up.

I don't know what is bullshit about the numbers on MF global but this thing is looking like at least a llheman collapse on the dxy chart.

And the dollar going up sharply with no economic activity is bad becasuse it means someone is bying something expensive in dollars.

Sat, 01/07/2012 - 05:09 | 2041808 StychoKiller
StychoKiller's picture

Chineze buying Au/Ag?

Iranianz buying Pu/U?

More questionz than answerz...

Sat, 01/07/2012 - 12:19 | 2042094 trav7777
trav7777's picture

yeah....one thing that's true is that the decrease in economic activity should lead to a reduced amount of dollars going to other nations to buy stuff.  Perhaps that is the discrepancy.

This reduced dollar flow *could* be causing some stresses in places where dollar funding is required to service dollar debt.

Sat, 01/07/2012 - 11:22 | 2042011 blindfaith
blindfaith's picture

remember many debts are in dollars not euros.  Farnkly, I'd rather take a truck load of dollars than a pail of Xeuros at this point...who knows how long the Xeuro is going to be worth anything in exchange.

Ask the Chinese how much they have lost in the last few days on xeros bonds and how much 'profit' they would have seen had they kept US bonds.

Sat, 01/07/2012 - 12:15 | 2042084 Eally Ucked
Eally Ucked's picture

" Farnkly, I'd rather take a truck load of dollars than a pail of Xeuros at this point" your right here.

Truck load of USD must be a bit better than pail of Euros, but you never know what future brings

Sat, 01/07/2012 - 10:20 | 2041955 Chuck Walla
Chuck Walla's picture

It means we are runnng out of suckers to sell our crap to.

Sat, 01/07/2012 - 10:38 | 2041978 johnu78
johnu78's picture

I'd like to put the entire Fed board on an indefinite bread and water diet!

 

-John
http://cgi.ebay.com/ebaymotors/?cmd=ViewItem&_trksid=p3984.m1555.l2649&item=190624595810&sspagename=STRK%3AMESELX%3AIT

Fri, 01/06/2012 - 18:30 | 2040856 Cdad
Cdad's picture

The question is what they are converting the USD into

Answer:  central planning piggy banks and stuffed mattresses.

Funny...weren't we told for the last month that repatriation was flowing into Euro dollars?  Umm....not so much, I guess. 

Fri, 01/06/2012 - 18:34 | 2040869 Jlmadyson
Jlmadyson's picture

Very nasty chart for Mr. Timmy G.

No wonder they are going through so much cash with this kind of rollover. Where is that debt limit at today?

Fri, 01/06/2012 - 18:40 | 2040892 tekhneek
tekhneek's picture

Took out $600 today for the weekend and my bills were numbered -- IK(...)601 through IK(...)630.

This is the third time in 2 months where I've pulled out cash and had consecutively numbered bills. I'm not sure if this is even a big deal or not but this hasn't happened to me before until now. Usually they're all over the place and aren't brand new. All say 2006 on them too. Or maybe I'm just being an alarmist but I can't help but think something's going on.

Fri, 01/06/2012 - 18:42 | 2040900 TruthInSunshine
TruthInSunshine's picture

That sounds very odd to me, but then again, I'm not that familiar with the inner workings of the machinations behind the doors of Timmay Wonka's Fiat Factory.

Fri, 01/06/2012 - 19:07 | 2040976 pakled
pakled's picture

$600 for two days? I pull $40 at a time. I want to party with you....

Fri, 01/06/2012 - 20:34 | 2041207 smiler03
smiler03's picture

This happens all the time in the UK. I would say 3 out of 5 times that I use an ATM I get brand new consecutively numbered notes, and that is as far back as I can remember.

In the UK our smallest denomination note is £5, they last for an average 9 months. According to Wikipedia a one dollar note is in circulation for an average 42 months! http://en.wikipedia.org/wiki/United_States_one-dollar_bill

Maybe they are replacing all denomination notes much sooner and have a much increased replacement plan in action?

Sat, 01/07/2012 - 00:03 | 2041585 SAT 800
SAT 800's picture

Does the green come off on your fingers? Just joking. No idea what it means; if anything.

Sat, 01/07/2012 - 11:17 | 2042008 Michelle
Michelle's picture

Banks order much more cash to hold in their vaults over the holidays and the reason is simple - cash gifts. Seasonal phenomenon, happens every year. Don't read too much into it.

Sat, 01/07/2012 - 12:21 | 2042099 trav7777
trav7777's picture

relax; I've seen that a million times.  More likely is that the bank has a different process for stocking ATMs than the counter.  They probably take cash in magazines or something for the new ATMs, instead of loading it themselves.

Fri, 01/06/2012 - 18:36 | 2040870 Amish Hacker
Amish Hacker's picture

It would take a miracle to bring back those foreign buyers of USTs. Like maybe a euro plunge, a Middle East war, and a Chinese housing market collapse. I wonder why no one else has thought of this...

Fri, 01/06/2012 - 18:39 | 2040877 TruthInSunshine
TruthInSunshine's picture

The sell UST/buy into John Paulson and/or Barton 'Smally' Biggs trade is back on.

Disclosure:

<--- Longpork (or so they tell me)

Fri, 01/06/2012 - 18:53 | 2040939 Zero Govt
Zero Govt's picture

Short T's

Fri, 01/06/2012 - 19:29 | 2041007 Strut
Strut's picture

Totaly bearish. Soon you'll be paying them to tie up your $... Wait...

Sat, 01/07/2012 - 05:11 | 2041809 StychoKiller
StychoKiller's picture

Ha!  I never get tired of that sword swallowing act...

Fri, 01/06/2012 - 18:54 | 2040942 Papasmurf
Papasmurf's picture

Is the the smart money, or the dumb money?

 

Fri, 01/06/2012 - 18:57 | 2040952 ucsbcanuck
ucsbcanuck's picture

Smart - treasuries are at an all time high -  dump now, while going is good. There is a USD crunch on.

Fri, 01/06/2012 - 19:07 | 2040975 gatorengineer
gatorengineer's picture

Tyler you have it bass akwards.... The liquidation of these treasuries is what is artificially holding the euro up (Sell dollars buy euros), when this trade ends euro collapses.  Treasuries will actually drop when the crash hits (Euro) europe and Siemens and company moves the rest of their money to BAC and Citi, etc....

Fri, 01/06/2012 - 20:12 | 2041148 Buck Johnson
Buck Johnson's picture

Your correct, that is exactly whats happening.  It's no wonder that the Euro was stopped at the 1.20 and change mark and then came back up.  The Euro is getting to close to parity to the dollar and they needed to stop the slide.  Because if it got down to parity or less than parity (dollar worth more than the Euro), then it would drop even faster because people would be getting out of the Euro. 

Fri, 01/06/2012 - 19:21 | 2041001 non_anon
non_anon's picture

call the plumber, the crapper is overflowing again!

Fri, 01/06/2012 - 19:27 | 2041012 Al Huxley
Al Huxley's picture

Commercials are hugely short USD and short:long ratio for gold and silver is as low as I've ever seen it. Usually around 2:1 short to long, 3:1 at peaks for gold, now well under 2:1. The commercials are usually on the right side of these markets (since they own the markets and make the rules, hard for them not to be) so expect a big drop in USD and corresponding rise in PMs in the near future.

Sat, 01/07/2012 - 00:00 | 2041581 SAT 800
SAT 800's picture

Not convinced about the dollar; have no position. Long Silver from $27even basis Mar. agree the metals will continue present rally.

Fri, 01/06/2012 - 19:41 | 2041047 bahaar
bahaar's picture

So everyone is selling UST because dollar is worthless.  I'd like to know what they're buying so I too could buy that.  Euros?  Ha Ha.  Yen?  Ha Ha.  RMB?  They can't even if they want to.  They won't even if they can.  World in my opinion, is in a Catch 22 situation.  

Fri, 01/06/2012 - 20:52 | 2041243 richard in norway
richard in norway's picture

korean won, dont ask me why!

Fri, 01/06/2012 - 23:54 | 2041569 SAT 800
SAT 800's picture

Not selling because dollar worthless; not worthless; pressing need for dollars to satisfy contracts written in dollars.

Sat, 01/07/2012 - 10:07 | 2041942 GMadScientist
GMadScientist's picture

Keynes liquidity preference or Diamond-Dybvig bleed out?

 

 

Fri, 01/06/2012 - 19:53 | 2041074 Schmuck Raker
Schmuck Raker's picture

Are they selling due to declining faith in the $/Treas.?

Or, because they need the cash?

I wonder.

Fri, 01/06/2012 - 23:55 | 2041571 SAT 800
SAT 800's picture

Selling because need dollars to settle accounts; (de-leveraging).

Fri, 01/06/2012 - 20:18 | 2041165 lolmao500
lolmao500's picture

They need cash... selling dollars to buy euros, as Tyler has said many times in the past. When there's no more dollars to sell to buy euros, euro collapses... money moves to the US... Yet more money for timmy and Ben to run deficits.

It'll only end when there's a better place to put money (Mars or the Moon) or the brainwashed ``investors`` man the fuck up and sell those treasuries to buy land, gold, silver, food, ammo and guns, whatever...

This whole scam will never end.

 

Fri, 01/06/2012 - 20:41 | 2041221 Alchemist
Alchemist's picture

ZH contiues to demonstrate an ignorant bias and misunderstanding of reserve accounting.. Things are fairly simple - look at China's capital account - it turned negative late last year.. that means that capital outflows are resulting in decrease of Chinese reserves.. So if they are losing reserves - they have to sell Treasuries.. However on teh other side the reserves are going somewhere else.. for teh sake of this example lets assume that capital outflows from China are going back to the US (makes sesne given outperformance of US assets) where the formerly china reserve cash ends up being parked at US banks which in its turn use the $ to buy treasuries.. So math is pretty simple - reserve changed hands and with that the ownership of treasuries with no impact on the market

Fri, 01/06/2012 - 21:49 | 2041364 Spitzer
Spitzer's picture

Chinese selling  of treasuries lowers the US's capital account surplus.

Sat, 01/07/2012 - 10:09 | 2041945 GMadScientist
GMadScientist's picture

You have the cayukes to show your face with the Zooro crashing, Spitzer?

Tell us another bedtime story about how it will be the reserve currency in the end.

Fri, 01/06/2012 - 22:31 | 2041434 Eally Ucked
Eally Ucked's picture

We don't need very arcane accounting rules, we are simple people. Do we produce enough to pay for what we buy? is that clear question, or I have to go deeper into a little problem? Sorry I'm drunk

Sat, 01/07/2012 - 13:04 | 2042193 Maestro Maestro
Maestro Maestro's picture

Wrong.

 

When the Chinese sell US assets, it means they are buying either other currencies (and foreign bonds), or commodities, or goods and services with the proceeds.  When there is more supply of a thing, its price goes down.  US Treasuries and US dollars eventually will go down in price relative to other currencies and hard assets for which they are being exchanged.

Bonds, currencies and commodities are part of "the market" so the market is impacted, in contradiction of your claim.  This is so even if you use the term "market" in the narrow sense of the bond markets only.

Fri, 01/06/2012 - 21:18 | 2041291 lunaticfringe
lunaticfringe's picture

The Bernank will just buy them. The CB has trillions just waiting for such a calamity. Nothing to see here. Move along.

Fri, 01/06/2012 - 21:18 | 2041293 Yen Cross
Yen Cross's picture

  And so ( Zulu) -,   Trade begins where?

Fri, 01/06/2012 - 22:58 | 2041474 upWising
upWising's picture

Costa Rican colones
Botswana Pulas
Fiji Dollars 

Fri, 01/06/2012 - 23:40 | 2041545 theyenguy
theyenguy's picture

Bonds, BND, turned lower as the Global Government Finance Bubble burst, as World Government Bonds, BWX, entered an Elliott Wave 3 of 3 down. We are witnessing the beginning of the end of the AAA era. The most toxic of Municipal Debt, Michigan Municipal Bonds, MIW, has turned down. Investors have begun exiting US Government Treasuries, ZROZ, EDV, TLT. The chart of the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, is steepening as reflected in the Steepner, ETF, STPP, rising, and the Flattner ETF, FLAT, falling. Long Maturity Bonds are now loosing money. Derisking turned Emerging Market Bonds, EMB, Leveraged Buyouts, PSP, Junk Bonds, JNK, HYG, lower. Global debt deflation has enabled the bond vigilantes to successfully sell all Treasury debt short. The world central banks are no longer in control of interest rates: the only result can be price inflation, that is inflation in the cost of thins purchaed, (this comes from one’s currency buying less of commodities which are priced in dollars), and this at a time when global growth is starting to fail. The world has passed through peak credit. The bill for ponzi credit created by the US Federal Reserve, the ECB, and Wall street, has come due. Richard Russell, publisher of Dow Theory Letters said in King World News interview, We are watching the greatest debt bubble in history about to deflate, and it won’t be a pretty sight. A steepening yield curve means a recession is coming to the US and a depression to the world. Regional trade will replace global trade. The new direction in globalization is regionalization.

Given that the seigniorage of fiat money has failed, the seigniorage of diktat must increase. Regional global governance is rising to replace sovereign nation states, as nations loose their debt sovereignty. Fate is passing the sovereignty to regional sovereign authorities, such as the EU ECB and IMF Troika, those of the CELAC Group, and China as it rules in Asia trade arrangements with Japan and the Shanghai Cooperative. Stakeholders will be appointed from industry, government and banking to manage commerce, credit and resources, critical to the region’s security and stability. Public private partnerships such as Macquarie Infrastructure, MIC, will take the lead in managing the factors of production. Canadian Energy Income Companies, ENY, and Canadian Oil and Pipeline Companies such as Enbridge, ENB, will for all practical purposes be regionalized, that is something akin to being nationalized. In Europe a fiscal union will rise to provide fiscal rule over countries that use the Euro, and the Bundesbank or the ECB will be established as Europe’s Bank. The Renminbi, that is the Yuan, CYB, will serve as Asia’s defacto regional currency. Banks in this Finviz Screener, around the world will all be nationalized, or better said, regionalized. Structural reforms, austerity measures, pension overhauls, reworked national wage contracts, dismissal of government employees, and debt servitude will be de rigueur. Life in the Euro zone will be characterised by collectivism, as statism rises to govern all. Libertarianism’s dream of Freedom and Free Enterprise are simply mirages on the Neoauthoritarian Desert of the Real. Martin Armstrong writes in Financial Sense Capital Controls Coming In The US.

Fri, 01/06/2012 - 23:58 | 2041577 Blano
Blano's picture

MIW has turned down?  Where? 

Sat, 01/07/2012 - 11:37 | 2042030 blindfaith
blindfaith's picture

1920's 1930's all over again.  Thank God they stopped teaching history in school.  One thing about all this, the Cath-o-lick church will ( as in the 30's) sit behind the sceens and collect while blood flows in the streets of europe.

Fri, 01/06/2012 - 23:55 | 2041570 suckerfishzilla
suckerfishzilla's picture

The USD was 63 in March it's now at 81.25.  How can the USD rise while treasuries are being dumped at a record pace?

Sat, 01/07/2012 - 00:06 | 2041591 SAT 800
SAT 800's picture

Well, yes; it's not a one dimensional situation. Still, this is the very good service provided by Zero Hedge; the reporting of these kinds of developments. This is significant, I'm sure; although I can't actually interpret it; I'll just remember it in case it clicks with something else I run across.

Sat, 01/07/2012 - 04:16 | 2041789 Zero Debt
Zero Debt's picture

March 2011....Closer to 73 than 63 I'd say.

Sat, 01/07/2012 - 15:00 | 2042393 suckerfishzilla
suckerfishzilla's picture

WTF?  Sorry I went to future trader dot com and what you say is true.  That's what I get for working from memory.  The index is 81.25 +.36 right now.   My inquiry is still valid. 

Sat, 01/07/2012 - 15:09 | 2042418 suckerfishzilla
suckerfishzilla's picture

I reference indicators everyday at kitco.  USD is quoted everyday continuously.  Again I thought my memory was rock solid on that.  sorry.

Sun, 01/08/2012 - 03:59 | 2043696 suckerfishzilla
suckerfishzilla's picture

How the hell can you vote down a question?  There is a stick up somone's butt here. 

Sat, 01/07/2012 - 00:20 | 2041613 deagle44
deagle44's picture

This is a good thing.  They are spending their dollars, which will eventually increase our exports, which will add to gdp.

Sat, 01/07/2012 - 02:42 | 2041739 jimmyjames
jimmyjames's picture

Seems that the German 1 yr T is pretty popular-into negative rates since December-

http://www.acting-man.com/blog/media/2012/01/Germany-1-year-yield.gif

Sat, 01/07/2012 - 02:57 | 2041748 mt paul
mt paul's picture

the world 

is dumping treasuries

to aquire dollars...

 

to pay the Tylers off

Sat, 01/07/2012 - 10:14 | 2041950 gmak
gmak's picture

Looking at EUBSC (EUR basis) on Bloomberg tells me that there are enough dollars on the other side of the swap (Banks in Europe need dollars to meet debt commitments because of bad loans on the books). I would suggest that these Treasuries are being sold to provide liquidity to the EUR /USD basis market to provide $'s to the european banks so that they can meet their dollar commitments.

 

Just a thought,

Sat, 01/07/2012 - 12:45 | 2042149 ThirdCoastSurfer
ThirdCoastSurfer's picture

This is a form of "dollar cost averaging".  Unlike a margin call, foreign banks are free to invest in distressed assets where the potential for return makes sense. 

Sat, 01/07/2012 - 12:46 | 2042151 jackinrichmond
jackinrichmond's picture

i have noticed that the treasury sell off is usually followed by a surge in the markets.  

actually, i find that the treasury sell offs are a great indicator for predicting market direction.  

watch for yourself..  when the treasury board goes red, the markets go green (and vise versa).   the bigger the treasury sell off, the bigger the market surge.  it looks like they're juggling the money back and forth.

maybe the treasury outflow is being used to support the u.s. markets... ?

Sat, 01/07/2012 - 13:53 | 2042285 Broker NotBroke
Broker NotBroke's picture

So, help me out here. Foreigners are selling treasuries back to the fed in exchange for dollars. Isn't this another round of QE? Bullish for stocks, as global money supply increases?

 

Short term bearish for treasuries, Gross and Societe Generale still have it right in the long term. BTFD in treasuries today while they're cheap before Benny Warbucks starts dealin' out the Fiat Ponzi.

Sat, 01/07/2012 - 15:00 | 2042400 jcrockett870
jcrockett870's picture

Treasuries don't pay enough interest.   If managers think that the economy is improving, or that other assets will increase, they will sell treasuries and buy something else.   The question is ... Will the US raise the rate of treasuries and what effects will that have?

Sat, 01/07/2012 - 15:01 | 2042405 besnook
besnook's picture

selling treasuries going long pms and oil.

 

there are better ways to acquire dollars to pay off dollar contracts. i suspect someone(china) is selling treasuries to equalize the pressure exerted by the failing euro.

Sun, 01/08/2012 - 13:37 | 2044263 tedstr
tedstr's picture

It means foriegnbanks (and treasuries)are selling everything that's not nailed down.  They are burning the furniture to heat the house.  All assets being sold to pay down their own debts and write off imploding loans, sell,ing USTs to cover imploding revenues.  Its the great deleveraging gaining speed in the EU.

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