UST meltdown (thread): Here is what I’ve been able to piece together: 1) China is not selling USTs, even though their official holdings keep dropping. To get a complete picture of their position, it is necessary to include their holdings via Euroclear and other entities. 1/
2) China is short dollars which are being provided to them via Japanese banks. Some of the dollars are being used to support the currency. The trade war will place further pressure on the currency. 2/
3) Rising rates in Japan and pressure on Japanese funds is causing them to unwind the carry trade which is causing downward pressure on US equities, bonds, and the dollar. This is the largest source of selling pressure on bonds. 3/
Past experience shows that the carry trade tends to be unwound in waves over months or years. 4) Fast money accounts have a sizable, roughly $1t, basis trade between futures and cash (short futures, long USTs). 4/
Having caught wind of the unwind of the JPY carry trade, they are unwinding their basis trade hoping to get out before the unwind of the JPY carry trade. 2025 may be year of the great unwind, whether it’s trade, carry, basis or other. 5/
I’m not in the habit of quoting Lenin, but this seems appropriate: "There are decades where nothing happens; and there are weeks where decades happen". 6/END