Treasuries' Worst Drop in 2010 Driven by Central Bank Sales: Chart of Day

Central banks outside the U.S. sold Treasuries at the end of November and in December for the first time since June, spurring the biggest monthly loss in a year for the government securities.

The CHART OF THE DAY graphs Treasuries held at the Federal Reserve by foreign central banks and governments. It also shows U.S. 10-year yields climbing in December to a seven-month high. So-called custody holdings rose to a record $2.611 trillion on Nov. 17, according to the U.S. central bank. The figure dropped $2.25 billion in the last week of November, and foreign official holders have sold $1.5 billion of Treasuries in December.

“Foreign central banks have dramatically slowed their buying of Treasuries,” JPMorgan Chase & Co. analysts led by Srini Ramaswamy in New York wrote in a report Dec. 17. “This sharp decline in foreign demand likely contributed to the selloff in Treasuries,” according to JPMorgan, one of the 18 primary dealers required to bid at the government debt sales.

Treasuries handed investors a 2.0 percent loss this month, according to Bank of America Merrill Lynch indexes. The last time U.S. government debt fell more was in December 2009, when it dropped 2.6 percent. Investors outside the U.S. hold about half of the nation’s marketable debt, which has grown by more than 50 percent since the start of 2009 to $8.75 trillion.

“This is quite scary,” said Tomohisa Fujiki, an interest- rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “It was one of the big factors during that massive selloff.” BNP’s U.S. unit is another primary dealer.

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To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Dec. 15 (Bloomberg) -- Former Federal Reserve Bank of Richmond President Alfred Broaddus talks about the outlook for U.S. Treasuries, Fed monetary policy and the performance of the U.S. economy. Broaddus speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Dec. 15 (Bloomberg) -- David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley, discusses the Treasury market, economy and inflation risk. He talks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)