Luke Gromen | Another UST Bailout

Luke Gromen’s FFTT newsletter quotes this March 19 article from Bloomberg:

Fed and five global Central Banks announce move to boost USD funding

The Federal Reserve and five other central banks announced coordinated action Sunday to boost liquidity in US dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system.

Central banks involved in the dollar swaps will “increase the frequency of 7-day maturity operations from weekly to daily,” the Fed said in a statement coordinated with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.

Gromen points out that the likely purpose of the swap lines are to forestall foreign sales of US Treasuries.

Foreigners short [of] USDs have up to $7.3T in USTs they can sell into a UST market that could not withstand $450B of foreign selling without becoming dysfunctional in 2022. As such, the USD swap lines were at their core, another de facto UST market bailout, the fourth such bailout in the past 3.5 years (Sep-19, Mar-20, Sep-22, Mar-23).


Foreign investors hold $7.3 trillion of US Treasuries.

Foreign Investment in US Treasuries

Long-term investors like the Bank of Japan have recently been sellers to support the falling Japanese Yen. Treasury Secretary Janet Yellen in recent months expressed concern about the lack of liquidity in Treasury markets. Swap lines between the Fed and other central banks may boost USD liquidity but also forestall sales of US Treasuries into an illiquid market by foreign central banks.