Following up on yesterday’s episode of the new reality TV show “Who Wants To Lead The World Through Years 5, 6, 7 and 8 Of The Present Long Depression” here is tomorrow’s skill testing question …

Please Choose The Best Candidate:

A) Pompous
B) Wooden
C) Fluffy
D) Gone

Igor thinks there’s a good chance “D” finishes better than fifth (sic), at least that’s how he’s voting

At “the Fred”, America’s most solvent housing GSE, holdings of MBS surged up $7.160 billion. Meanwhile foreign cenbanks’ holdings of agencies were flat, but they bought enough treasuries to reverse most of the last two weeks’ dump. Now the BoC seems to be selling, but the BoJ put a cool $100 billion into Tim Geithner’s treat bag last Oct 31st and the Fed (which with the Treasury seems to constitute two pockets on the same pair of pants, but I digress) has been swallowing great gobs of the stuff, so everything is completely under control. Or as twist sends …

WSJ (1/19 ’12): “Treasury Bond Market Unscathed By China’s Reduced Buying”

But even assuming that some of the $7.8 billion increase in U.K. holdings recorded over that same two-month period were from official Chinese sources, the data at least suggest a halt in its buying if not net selling. And with reports from the People’s Bank of China showing a third consecutive month of dollar outflows from China’s foreign exchange market, along with the first quarterly decline since 1998 in the central bank’s foreign reserves–to $3.18 trillion–there are reasons to believe that China again failed to add to its Treasurys portfolio last month. // “The fear of China is overblown,” said Eric Green, chief U.S. rates strategist at TD Securities in New York. “If China buys [no Treasurys] then it could push rates marginally higher over the near term, but the market will find equilibrium with higher domestic savings and lower budget deficits.” [i.e. we're in a depression ...] // In fact, if all other factors were held equal, last year’s slowdown in Chinese purchases would have driven yields higher since the outstanding stock of Treasury debt continued to rise by around $300 billion in every quarter last year. One reason that didn’t happen is because two big buyers of U.S. government bonds stepped up to fill China’s shoes: the U.S. Federal Reserve and Japan’s central bank.

So there you have it. If you’re not now completely soothed regarding foreign demand for US obligations you obviously don’t understand the situation.

December 29th Reuters report¹ was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site,² but they seem to be among the missing yet again this week. As in election coverage, it’s often useful to note what the MSM isn’t reporting. Here is Doom’s updated CSV version³ of the agencies and treasuries foreign central bank holdings data set.

Treasuries blasted up a trend-defying $13.650 billion

Agencies drifted down a barely measurable $0.271 billion

*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 of US obligations recovered $13.650 billion.

Twist’s ratio graphs swung downwards this week.

The Setser numbers diverged lustily, fending off the evil day when the yellow line hits zero.

________________________

Notes and References

[1]: “Foreign central banks’ U.S. debt holdings fall: Fed”, by Steven C. Johnson, Reuters, December 29, 2011.

[2]: “H.4.1 Factors Affecting Reserve Balances”, Federal Reserve Statistical Release (weekly), Federal Reserve Bank of New York.

[3]: The updated data set as a Comma Separated Value (CSV) file is here (includes Fed’s own MBS holdings).

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