For two years the argument about foreign demand for American debt has been theory. This weekend it produced a receipt. Bloomberg reported that Japan's holdings of foreign securities fell $87.8 billion in August, almost exactly matching what Tokyo spent defending the yen. The Finance Ministry has confirmed the intervention ran to ¥15.4 trillion, roughly $98.6 billion, the largest in Japanese history. The yen went from 160.39 to 154.50 and it worked. But understand what happened. America's closest financial ally liquidated tens of billions of Treasuries in a single month, and not one dollar of that selling was a vote against the United States. It was a country defending its currency with the only liquid asset it holds in size. Luke Gromen framed the mechanism better than anyone this week. When the dollar gets too strong, foreigners sell dollar assets, starting with what they can sell rather than what they want to. So austerity aimed at strengthening the dollar paradoxically increases the effective supply of Treasuries, because central banks have to dump them to defend their own currencies. Every lever pulled to make the dollar stronger creates more sellers of the thing Washington needs buyers for. Now the number almost nobody framed properly. Bank of America shows fifteen year and longer Treasuries have returned negative two percent per year over the past decade, the worst ten year stretch in roughly a century. Everyone shared that as a disaster. Almost nobody quoted the title BofA put on the chart, which reads negative long run returns, great entry points. The only two prior troughs on it are December 1959 and September 1981. September 1981 was the greatest moment to buy a long bond in modern financial history. And the myth. IMF reserve data shows the dollar at 57% of global reserves, its lowest in thirty years, which sounds alarming until you read the next line. Between 2015 and 2023 roughly equal numbers of countries increased and decreased their dollar holdings. The decline is concentrated in two strategic rivals. The dollar is not being abandoned, it is being trimmed by China and Russia and occasionally liquidated by allies with currency problems, and those need different medicines. Full piece, including why retail has quietly abandoned the chip trade, where Russian gold is actually going, and what Friday's inflation print decides, is here https://cycledesk.substack.com/p/the-dollar-myth-and-the-bond-market?r=7unzzg&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true
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