Thursday, August 27, 2015

Treasuries Up Modestly Following Details of China Sales


Societe Generale estimates that China sold at least $106 billion of reserve assets in the last two weeks.  Much of that assumed to be Treasuries. It is argued that (China is Selling U.S. Treasuries to Support Yuan).   While China’s U.S. Treasury holdings are more generally of shorter duration than bonds, they appear to have jettisoned longer duration instruments recently.  

For guide, open interest rose by 54K in Bond futures and by 27K in Ultra Bond futures (as well as 67K Five year) yesterdays as Dealers, having taken the other side of those China sales, hedged these positions by selling Treasury futures.  A word of caution; there is some noise in the open interest data as the ‘Treasury Roll’ (futures positions moved from September to December) is in play.    

The Chinese had a ready market for their Treasury sales.  It worked out quite well for them.  The plunge in China stocks brought global markets nearly to their knees and rose demand for Treasuries.  China found ready buyers for their Treasury liquidation and they sold into strong treasury prices and a strong dollar. 

Price action for Bonds has been weak since Monday’s bearish ‘shooting star’ with two very long black sessions.  A trend line support was broken on Tuesday.  The ‘double doji’ of Friday/Monday indicates likely high volatility.  

 

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