Mass Confusion: Fate Of US Treasurys Is Great Unknown Amid China Dumping
by Tyler Durden
ZeroHedge.com
09/07/2015
This morning, we got the official data out of the PBoC which shows that China liquidated around $94 billion in FX reserves during the month of August. Taking the FX valuation effect into account the actual drawdown was probably more along the lines of $115 billion. The numbers confirm what we tipped weeks ago – namely that the pace of China’s Treasury dumping increased dramatically in the wake of the August 11 devaluation.
As we’ve been at pains to explain, China’s reserve drawdowns are simply the most dramatic example of a larger phenomenon that began with the death of the petrodollar. This phenomenon – the across-the-board liquidation of USD assets on the part of imperiled emerging economies – was characterized by Deutsche Bank as the end of the “Great Accumulation,” and as we noted earlier today, it has serious implications not only for investors’ collective perception of market stability, but for yields on core paper, for global liquidity, and for US monetary policy.
The problem is that currently, no one is quite sure what those implications actually are. We know, for instance, that the massive liquidation of USTs will have a tightening effect on global liquidity. We began discussing this late last year in the context of the petrodollar, noting that for the first time in ages, exported petrodollar capital was set to turn negative in 2014 (i.e. a net draw on liquidity from petro states). Logically, this should put upward pressure on UST yields and will, all else equal, work at cross purposes with DM central bank QE.
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