Are China & Saudi Arabia Selling Treasuries?

By Peter Tchir of Academy Securities

The Good News Out of the Ukraine

The good news is that Russia is sending all sorts of signals that their intent is now to focus on the Donbass and Eastern Ukraine. They seem to be pulling back from their attack on Kyiv. That is positive and dovetails nicely with peace talks scheduled to take place in Turkey.

The Questions on Ukraine

General (ret.) Walsh raised two questions on peace talks and the purported Russian pullback yesterday:

Have the casualties reached a point where Ukraine is willing to sacrifice this region now, when they weren’t willing to before the war? Since the Ukrainians are holding them at bay, that will be a difficult decision for Zelensky. Furthermore, the pretext that the Eastern part of Ukraine would welcome Russia has proven to be false, and one can only believe that many in the East want even less to do with Russia, now than they did before?

Is Russia just executing a better battle plan? Virtually every member of Academy’s Geopolitical Intelligence Group questioned how Russia carried out the initial assault (too few troops, too many points of attack, multiple extended supply chains, etc.). So is there a risk that Putin is biding his time, to take this region, secure his footing, and then resume pushing West?

The fact that senior Russian officials are commenting and that the Russian media is discussing it, are positive signs.

For now, it seems likely that we see more localized fighting, which is good, but too early to expect any sort of “business as usual” in the region.

Now We Can Focus on the Fed and Rates?

The potential “bad” news for markets is that we may now fully turn our attention to the Fed, rates and Quantitative tightening.

We hit on a lot of those subjects in this weekend’s “Collecting Our Thoughts” report.

The one that has sparked the most conversations since then is the possibility that some countries, like China and the Kingdom of Saudi Arabia are selling treasuries. Given the poor depth of liquidity and how much of the front-end selling seems to occur in the overnight sessions, this concept seems worth exploring. While we won’t get any TIC data that covers the post-invasion post-sanction world until May (there is a 2 month lag in the reporting), it would mean that much of the front end move can be explained by positioning and selling rather than anticipating all the rate hikes. It would explain why the front end hasn’t acted at all like a “risk-off” asset.

Higher treasury yields have been supportive for credit, as they should be, with “yield-bogey” buyers stepping in, but the resilience in stocks might be tested. Stocks are now almost done climbing the Russia wall of worry and might keep climbing the Fed wall of worry, but a lot of resilience has been priced in and the short squeeze has been quite painful, but positioning should be more balanced by now.