“Avalanche Beginning?”: Foreign Central Banks Dump Most Treasuries In Over 2 Years

Monday, April 30, 2018
By Paul Martin

by Tyler Durden
Mon, 04/30/2018

Over the weekend, in its attempt to explain the sharp Treasury selloff in the second half of April which sent the 10Y briefly above 3.00%, JPMorgan cast the blame almost exclusively on momentum-chasing funds, i.e. CTAs, whose sharp momentum reversal from net long to net short…

The implication was that with CTAs – which trade on nothing but pure technicals and momentum and are oblivious to fundamentals such as inflation or central bank policy, having flip-flopped twice in one month, much of the downside pressure on Treasury prices would be removed:

Given that a shift to shorts by CTAs is likely to have taken place over the past week and a half in our framework, we think that momentum traders are less likely to remain as a strong bearish force for 10y USTs going forward

But while that explanation was clear and clean enough, there was more.

As we showed last night, in addition to CTAs reportedly dumping their long exposure, someone else was busy selling: foreign central banks. To be sure, while there is no foolproof, coincident indicator of what official public accounts and monetary authorities do with their Treasury holdings, the Fed’s weekly report of Treasurys held in custody is the closest thing there is to a real-time indicator. It is here where we find the biggest weekly drop in holdings since the China deval days of January 2016, which implicitly suggest that China may indeed have been liquidating at least a modest portion of its TSY holdings as many people suggested, if only tongue in cheek.

The Rest…HERE

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