Ease Back on USD

Again in yesterday’s WSJ on the front page we found this story titled Beijing Diversifies Away From U.S. Dollar to be interesting and one we did not hear cited much on Friday.

You would think this reduction in USD exposure by the our largest creditor would be seen in market discount but with retail investors piling into fixed income and the Fed buying up virtually 100% of new issuance these buyers are neutralizing the Chinese reduction of exposure.

With the Fed backing off QE (for now) and the retail asset allocation shift basically run its course this neutralization trade could become much trickier.  Again we see the biggest risk in markets in the front of the yield curve as the risk-on/risk-off inversion trade gets reconciled..

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About exantefactor

capital market veteran of over 15 years covering multiple asset classes. Focused on analyzying markets ex ante (before the event).
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