For­eign cen­tral banks dump cash at Fed

The Pak Banker - - COMPANIES/BOSS -

China, Ja­pan and other over­seas cen­tral banks are leav­ing more of their dol­lars with the US Fed­eral Re­serve as they have liq­ui­dated their US Trea­suries hold­ings to raise cash in an ef­fort to sta­bi­lize their cur­ren­cies, govern­ment data show.

For­eign cen­tral banks' re­duced own­er­ship of US govern­ment debt, es­pe­cially older is­sues, have bloated the bond in­ven­to­ries of US pri­mary deal­ers and kept US money mar­ket rates el­e­vated in re­cent months, an­a­lysts said. Pri­mary deal­ers, or the top 22 Wall Street firms that do busi­ness di­rectly with the Fed, held $113.5 bil­lion worth of Trea­suries in the week ended Feb. 10, the most since Oc­to­ber 2013.

As Wall Street holds more Trea­suries, for­eign cen­tral banks have piled more money into the Fed's re­verse pur­chase pro­gram where they earn in­ter­est in­come.

"They have been sell­ing their Trea­suries hold­ings and us­ing more the Fed's re­verse repo pro­gram," Alex Ro­ever, head of US in­ter­est rate strat­egy at J.P. Mor­gan Se­cu­ri­ties in New York, said on Mon­day. On Feb. 17, over­seas cen­tral banks held $246.65 bil­lion in re­verse re­pos, up from $129.78 bil­lion a year ear­lier, Fed data re­leased last week showed.

For­eign of­fi­cial in­sti­tu­tions in­clud­ing cen­tral banks sold a net $48.1 bil­lion in long-dated US Trea­suries in De­cem­ber, which was a record in monthly sales, ac­cord­ing to the Wall Fargo Se­cu­ri­ties econ­o­mists. Over­seas govern­ment sales of Trea­suries came as China and other ex­port-driven economies have dug into their cur­rency re­serves to stem cap­i­tal flights as oil and com­mod­ity prices have plum­meted.

They could rein­vest back into US se­cu­ri­ties when­ever jit­ters about the global mar­kets fade and oil prices find foot­ing af­ter hit­ting a 12-year low ear­lier this month, an­a­lysts said. "It's a place where they could park their cash for a pe­riod of time un­til they de­cide what they want to do with it, but I don't think it's a per­ma­nent desti­na­tion," J.P. Mor­gan's Ro­ever said.

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