Lee Adler: "Foreign Central Banks Dumping US Treasuries" - "Something is rotten here. These are signs of major systemic stress."

Threads In A Foreboding Tapestry | ZeroHedge

About 6 weeks ago, something changed. FCBs not only slowed their buying of Treasuries, they stopped altogether, reversed course and actually began selling them. Three weeks ago their selling reached a level that I characterized in my weekly Treasury update for subscribers as "dumping." It was simply unprecedented. I opined that this could be the beginning of the end of the Treasury bull market, in spite of any effect that the Fed's new Operation Twist might have.

Threads In A Foreboding Tapestry | ZeroHedge

As a result of today's market, the yield on the 10 year has broken out of an intermediate term base. Unless yields pull back immediately, the implication is that the intermediate term target is 2.50. Meanwhile, Bernanke had assured investors that long term yields would fall as a result of his doing the Twist.

Threads In A Foreboding Tapestry | ZeroHedge

The dealers appear to be in trouble. They began selling off their fixed income paper of all types in early September. That accelerated to what I can only characterize as wholesale dumping in the weeks ended September 21 and 28. It is no coincidence that those where the weeks where we began to see yields reverse from their record run.

Threads In A Foreboding Tapestry | ZeroHedge

These are troubling developments, not just for their implications for the bond market, but for what they imply about the health of the backbone of the US financial system--the Fed's Primary Dealer (PD) network.

Threads In A Foreboding Tapestry | ZeroHedge

If major corporations are supposedly doing so well and their balance sheets are in such great shape, why did the PDs not accumulate their fixed income securities throughout the equities bull market of 2009 and 2010? And especially why have they been frantically dumping their corporate holdings since June?

Threads In A Foreboding Tapestry | ZeroHedge

Something is rotten here. These are signs of major systemic stress.

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