Primary Dealers See $31 Billion In Liquidation Proceeds In Last Week Of March, Sell Multiyear Record Amount Of Sub-3 Year Coupons
Courtesy of Tyler Durden
In the last week of March, Primary Dealers dumped bonds en masse. After hitting a 2010 high in Coupon positions in the week ended March 24, the ensuing week saw the biggest outflow in Coupons in over two years. The total amount of cash raised with proceeds from Bill, Coupon and Agency sales generated a 2010 record in inflows of $31 billion, even as MBS holdings increased to a year high of $49 billion, a $6 billion increase for the week: nothing to goose the MBS market as QE is ending – after all the Fed has to call in a favor or two sometimes.
Table of YTD Primary Dealer positions:
A detailed weekly change by treasury maturity can be seen on the following chart. The biggest selling occurred in the 1-3 Year range, which means almost exclusively 2 Year bonds. In other words Primary Dealers, at least in the last week of March, were aggressively preparing for curve flattening.
In terms of absolute holdings, here is a chart of total Bill and Coupon Positions.
A long-term observation of weekly Treasury changes, shows that last week saw a record outflow in Under 3 Year Coupon securities. Note the historic volatility at key inflection points, especially in the Bill holdings: the first during the onset of the crisis when Lehman went bankrupt, and the second in mid-June 2009, just before the second and still very much inexplicable wave of buying began in 2009.
The source of funds for the stock purchasing in the first week of April is thus no longer surprising: PDs sold USTs, and bought stocks. The higher yield in Coupons in turn are attracting foreign (primarily Chinese investors – note the 10 Year auction), and Household based investors, even as stocks surge to massively overbought 20x+ multiples.
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