The hottest data for September might not be the Fed but the official numbers for China’s foreign exchange reserves. Traders said China was selling Treasurys like crazy in August to stop its currency from falling and is looking for a confirmation.
“Net capital outflows could be north of $100 billion, which seems to be a reasonable approximation of market expectations. We think risks are skewed to the upside relative to this consensus estimate,” wrote Robin Brooks of Goldman Sachs.
On the surface, market dynamics 101 dictates that prices should go down and yields should go up if you have a big seller in the market and no buyer to replace him and we have seen Treasury yields rise modestly in the past couple of weeks.
Not so fast said Scotiabank’s Guy Haselmann. “Treasury selling by central banks is temporary, while the economic factors causing the action will be longer lasting,” he wrote in a note.
