OPEC selling Treasuries

I came across an interesting story this morning that I think is worth sharing -- Bloomberg is reporting that OPEC countries are dumping their holdings of Treasury securities. Countries like Saudi Arabia and Indonesia sold more than 9% -- or just over $10 billion -- worth of Treasuries in the three months through November 2006. The last time we saw three consecutive months of selling was mid-2003. For background, OPEC countries boosted their U.S. government bond holdings by 115% between 2002 and 2006.

My take: The money, money everywhere phenomenon I've described here before has been an important force holding long-term Treasury yields down. We're buying tons of goods and commodities supplied by overseas countries, including oil. The cash we're sending overseas for those purchases has been recycled back into our debt -- not just Treasuries, but mortgage bonds, "agency" bonds sold by Fannie Mae and Freddie Mac, corporate bonds, etc.

Now, oil prices are falling. That is helping reduce outflows of U.S. money to OPEC nations. So there is less money to be recycled back into our debt markets. Put another way, falling oil prices may actually help push UP bond yields -- an anomaly for sure, since conventional wisdom holds that declining oil prices are disinflationary, and therefore a positive for Treasuries.