Foreign Central Banks Net Sellers Of US Agency Debt

Posted at 5:52 PM (CST) by & filed under General Editorial, Trader Dan Norcini.

Dear Friends,

Last week I reported on the fact that the Federal Reserve data concerning the Custodial Accounts had revealed a huge sale of US Agency debt of some $57 billion, the single largest one-week sale of such debt on record. The amount was so colossal, that I wondered if it might have been a clerical error and would be corrected on the next week’s report. Well, guess what? It wasn’t an error.

While this week’s report did not show any such stunning developments, it did reveal that once again, as is becoming a trend now, Foreign Central Banks were net sellers of US Agency debt. This week they sold a mere $3.5 billion of it but they did sell and that is what is important to note.

Please see the chart below for a look at their holdings of agency debt and note the trend which has been in a downward direction for the most part since the credit crisis erupted in the summer of 2008. For a brief period, (Feb 2010 – August 2010) they were repurchasing agency debt but with last week’s huge sale, that has come to an abrupt end.

I will continue to monitor and report on this as it will carry important implications for us all. If the US cannot sell this type of debt to foreign central banks, then the only alternative is for the Fed to print fresh money and buy that debt itself. Call it whatever you want – monetizing debt, QEII, etc., it still amounts to the same thing – a suicidal debasement of the currency – which is bullish for gold.

Click chart to enlarge in PDF format

Agency Debt chart 9-23-2010