– Record Consecutive Treasury Dump From Fed’s Custody Account (ZeroHedge, Jan. 6, 2012):
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.
I thought the Fed was working with foreign central banks to exchange agency debt from the custody account into purchasing of our US treasury’s (with the Fed being the buyer of that with money they are printing). Not that this is a good thing, but that’s different than what you are implying correct? I mean, they aren’t really repatriating it but turning around and using it to fund new treasury purchases at the open auction?