So far this month the collectivity of the Fed’s holdings of MBS and other central banks’ holdings of Agency Debt has dropped $79.796 billion. Where did they find counter-parties to take on nearly $80B of new exposure to American mortgages in just three weeks? The GSEs? Recently we’ve noted that the Fed seems to have been lately redefining trillions of dollars of RE-related assets from the “our problem, sort of” category to the “Fannie & Freddie’s problem, sort of” category. Does FHFA actually have a grip on the extent of the kids’ obesity problem? The catch is that if their balance sheets become too big it interferes with Treasury’s program of supporting them with just periodic purchases of preferred stock. I’m almost ready to believe that last week’s extraordinary dump of agencies may have been some central banker moving off the tracks ahead of that “missing trillions” train passing by.
The Fed’s own holdings of MBS nudged down an insignificant $0.361 billion and Agency Debt continued its losing streak, although not at last week’s monumental rate. That being said, the cenbanks have now shed a full 8.4% of their agencies holdings since September 1st. Treasury Debt holdings, on the other hand, have again surged with a second consecutive Top 10 all time weekly performance.
UPDATE: twist sends this fascinating long BusinessInsider comment by “Black Swan” from Tuesday: “… What the US Treasury did to keep the Chinese from dumping [in late 2008], was to indemnify the outstanding $1.3 trillion in Fannie/Freddie junk that was being held by foreign central banks in China, Japan, Europe, the Middle East and Russia, and domestically (actually internationally) by PIMCO. Ultimately, almost all of that junk was sucked up by the Fed. …” Black Swan doesn’t sound much less confused than me, but their commentary adds a bit to the picture of a plastered over facade from the time of the original September ’08 Panic that is starting to crack now (the cracks are the sudden recent up / down movements in the charts below).
ZeroHedge (9/24 ’10): “Guest Post: Foreigners Bail On Agencies”
… let us remind everyone that foreigners dropped agency securities in a similar manner in the summer of 2008, just before the crisis. This exodus, we believe, directly led to the placing of Fannie and Freddie into a conservatorship, which kicked off the “beginning of the end.” …
This week’s Reuters report1 was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.2 Here is Doom’s updated CSV version3 of the agencies and treasuries foreign central bank holdings data set.
The yellow line moon-shot continues.
Treasury Debt holdings blasted up $35.806 billion, the third highest number we’ve ever seen. But that’s about $3.5B less than last week, the second highest ever. Central bankers are gorging on treasuries at an extraordinary rate.
Agencies fell “just” 3.534 billion this week, which barely shows up in the graph after last week’s amazing dump.
*Agen-FM: The dotted line is the foreign central banks’ Agency Debt holdings reduced by the level of the Fed’s own MBS holdings. Since the FRBNY itself is a lightly audited peculiar amalgam of foreign & domestic, central and private bank I think it might be useful to consider the hypothesis that for a while starting in January 2009 the Fed’s MBS holdings were being quietly deemed to be “foreign.” That is, for the first half of ’09 the dotted line seems more sensible than the red one.
The net growth in US obligations held streaked up $32.272 billion, continuing the tremendous volatility in this stat.
Twist’s ratio graphs have suddenly started plunging faster than they did after the 7/7 ’08 Harting analysis when the cenbanks’ loss of faith in the agencies guarantee was a harbinger for the Crisis of 2008. Since the first day of this month the holdings of agencies as a percentage of the treasuries number has dropped from 34.0% to 30.2%.
The Setser components both rose as we’re on the anniversary of a smallish treasuries buy and a biggish agencies selloff.
Notes and References