Estonteantes 100 bilhões em duas semanas: China vai se livrando de títulos dos EUA. E mal começou.
There you have it: in the past two weeks alone China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime! But wait, there's more: recall that one months ago we posted that "China's Record Dumping Of US Treasuries Leaves Goldman Speechless" in which we reported that China has sold some $107 billion in Treasurys since the start of 2015. When we did that article, we too were quite shocked at that number. However, we - just like Goldman - are absolutely speechless to find out that China has sold as much in Treasurys in the past 2 weeks, over $100 billion, as it has sold in the entire first half of the year! In retrospect, it is absolutely amazing that the 10 and 30 Year Bonds have cratered considering the amount of concentrated selling by China. But the bigger question is how much more does China have left to sell, if this pace of outflows continues.
Here is SocGen again: From an operational perspective, China's FX reserves are estimated to be two-thirds made up of relatively liquid assets. According to TIC data, China held $1,271bn US treasuries end-June 2015, but treasury bills and notes accounted for only $3.1bn. The currency composition is said to be similar to the IMF's COFER data: 2/3 USD, 1/5 EUR and 5% each of GBP and JPY. Given that EUR and JPY depreciation contributed the most to the RMB's NEER appreciation in the past year, it is plausible that ... the PBoC may not limit its intervention to selling only USD-denominated assets. China's FX reserves are still 134% of the recommended level, or in other words, around $900bn (1/4 of total) and can be used for currency intervention without severely impacting China's external position. Should the current pace of liquidity outflows continue, and require the dumping of $100 billion in FX reserves, read US Treasurys, every two weeks this means China has, oh, call it some 18 weeks of intervention left. What happens when China liquidates all of its Treasury holdings is anyone's guess, and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace, and best of all: will the Fed just sit there and watch as the biggest offshore holder of US Treasurys liquidates its entire inventory...
