The Big Dump On Ben Bernanke's Head

The major beneficiary of OT might be the Chinese, if they had any trading sense. If I am the Chinese stuck with trillions in Treasury securities and I know the Fed is going to be sitting on the bid to the tune of $400 billion, then I just found my exit strategy and am going to hit the bid day in and day out.

I went on to question whether China would be as clueless about this opportunity as others, but foreign banks may indeed be taking Operation Twist as an opportunity to dump Treasury securities on the Fed. Lee Adler writes:

Foreign central bank dumping of Treasuries and Agencies reached record levels this week, far beyond anything seen in the 9 years since I started tracking this data. The last time anything remotely similar happened was at the top of the bull market in the summer of 2007, and those levels pale by comparison with what is going on today. Furthermore, this is no flash in the pan. This has been going on for 4 weeks, and has been growing for the past 3. Over the past 9 years, there has never been a time when FCBs were sellers of their Treasury and Agency debt for 4 weeks in a row. I do not believe that the bull market in bonds can survive under these conditions, regardless of what the Fed does. If the runs on European banks, bank paper, and sovereign debt subside, by even a little, it’s over.

More