Here is an interesting theory stipulating that foreign central banks are behind the rally in treasuries and that in turn is causing a rally in the dollar. Please consider Foreign Central Banks Behind Rally In US Treasuries.

The huge amount of US Treasury purchases which has sent that chart nearly vertical helps to explain the continued rally in the US Dollar. It is a near certainty that something has been transpiring behind the scenes involving various Central Banks in regards to the US Dollar. Should any of this Foreign CB buying abate for any reason whatsoever, the Dollar will lose all of its support immediately. With yields on US Treasuries headed firmly lower only a foolish investor would see bonds or notes as a safe haven given what we all know about the real rate of inflation here in the US in contrast to the absurd and mentally insulting numbers that the knavish feds are dishing out.

I repeat my main assertion – Foreign Central Banks are behind the rally in US Treasuries and as a consequence the rally in the US Dollar.

Theory vs. Practice

Inquiring minds, being the inquiring minds that they are, want to see just how well theory stands up to practice. Let’s match up the chart of custodial treasuries from the article above with a chart of the US$ for the exact same timeframe.

Custodial Holdings of Treasuries for Foreign Central Banks vs. US$ Index

click on chart for sharper image

So much for that theory.

Mike “Mish” Shedlock
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