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IPFS News Link • Federal Reserve

Fed's New Repo Measures Followed a $100 Billion Treasury Exodus

• Stephen Spratt and Liz Capo McCormick

Foreign official holders of Treasuries dumped more than $100 billion in the three weeks to March 25, on course for the biggest monthly drop on record, according to weekly Fed custody data that captures much of the pandemic-fueled turmoil.

Countries reliant on oil exports and smaller Asian economies have been selling U.S. debt, and central banks have been primarily offloading older, less-liquid Treasuries, according to traders and market makers familiar with the transactions.

The Fed on Tuesday rolled out its latest effort to restore functioning in markets, on top of moves to ramp up debt purchases and backstop several sectors. It introduced a temporary repurchase agreement facility that let other central banks swap Treasuries for dollars.

"The fall in custody holdings is a clear signal that foreign central banks -- which have a lot of Treasury holdings -- have been selling them to source dollars," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. "They need access to dollars as a lot of their payments are in dollars and that has driven them to sell Treasuries."

The Fed stopped short of saying it wanted to prevent a snowball effect from the selling, but said the new program will provide "an alternative temporary source of U.S. dollars other than sales of securities in the open market."


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