Is this any way to finance a trade deficit? According to the weekly Reuters report,[32] foreign central banks continued to sell off US obligations at the rapid pace last week of over $1.5 billion per day. This result for the period August 16th to 22nd inclusive was slightly less negative than the previous 7 days. Very peculiar, as domestic demand for "safe" treasuries went straight through the roof on Thursday the 16th. Our intrepid copywriter is back to her boilerplate, but couldn’t resist using words like dumped and plunged to document this remarkable result. Meanwhile, the Treasury sold the biggest volume of 3-month T-bills in 17 years yesterday,[99] so Doom might expect fewer net sales with all that competition. But with the way things are going, it’s anybody’s guess what will happen next.

Once again — it’s twist to the rescue with charts and graphs.  When the following graph is in positive territory it means agency debt is carrying the ball in supporting the US trade deficit.

Thanks for the graphics!

Please look here, here and here for an explanation of the following table and extracts from the language in each Reuters Thursday report going back to May 12th. Note the continuing negative treasuries and total trend over the last few weeks.

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Notes and References

[32]: "Foreign central banks net sellers of U.S. debt – Fed", Reuters, August 23, 2007.

Foreign central banks were net sellers of U.S. Treasuries last week, Federal Reserve data showed on Thursday.

The Fed said its holdings of Treasury and agency debt kept for overseas central banks plunged $10.56 billion in the week ended Aug. 22, to a total of $1.98 trillion.

The breakdown of custody holdings showed overseas central banks dumped $14.18 billion in Treasury debt, bringing the total to $1.21 trillion.

However, the foreign institutions bought securities from government-sponsored agencies like Fannie Mae and Freddie Mac, adding $3.62 billion to their holdings, for a total of $769.4 billion.

[99]: "U.S. to Auction Most Three-Month Bills Since 1990", by Daniel Kruger, Bloomberg, August 23, 2007.

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