For months, we’ve been at pains to explain to anyone and everyone listening that China is dumping US paper at a record pace.
As we detailed on Tuesday evening, the new FX regime (i.e. the system in place since the dramatic August 11 yuan devaluation) is costing China dearly in terms of FX reserves.
The reason: the new, more "market-based" regime is ironically requiring more intervention than the previous system and this has led directly to the liquidation of more than $100 billion in USTs in the past two weeks alone (by SocGen’s math), which means that incredibly, Beijing has sold more US paper in the past two weeks than it had previously sold all year!
And as SocGen, and now Zero Hedge readers, are acutely aware, this will only continue, as a stable currency requires either "complete FX flexibility or zero FX flexibility" and because China is stuck somewhere in between, the UST firesale is set to continue unabated.
Now, the world has awoken, and indeed Bill Gross is out asking the $64 trillion question:
Gross: China selling long Treasuries ????— Janus Capital (@JanusCapital) August 26, 2015