December was one of the worst months on record for foreign dealing with the “dollar.” The latest TIC update further confirms why January was under such persistent and heavy liquidation pressure in almost every corner. There was a record monthly amount of “selling UST’s” in foreign channels, a dearth of private “dollar” activity and, perhaps most important of all, bank liabilities for the last quarter of 2015 shrinking again at a troubling rate.

Just starting with the monthly overall total, the funding disorder is plainly evident in comparison to some of the worst financial months.

The huge “selling” pressure (and it should be pointed out again that “selling” UST’s and dollar-denominated assets in this context might be something other than liquidation; it could very well be an accounting transfer across jurisdictions, such as repo or derivative collateral flows, which leave market prices undisturbed but have enormous funding ramifications) was coming from the “official” sector, meaning foreign central banks and/or governments. As noted above, the one-month decline was by far the largest on record.

Since foreign “reserves” often follow in the form of UST’s, that was the asset class primarily responsible for signaling the distress.

The foreign private side accumulated very little of US$ assets in December, continuing at a small pace consistent with what we have seen throughout the various phases of the “rising dollar.”

On a cumulative basis, overall TIC estimates show a huge change since July 2015. That would correspond to two global liquidation events and constant funding pressure across the global euro/dollar (and euro-currency) network. If foreign official channels are being forced to respond is such dramatic fashion, such reactivity is clearly due to bank balance sheet reductions.

There was, as I pointed out in the November TIC update, an unusual decline in estimated bank dollar liabilities in the middle month of Q4 which suggested that the overall quarterly pullback would be once more quite large. December’s estimate of -$127 billion was a smaller decline than many of the prior quarter-end months, but combined with the huge and unusual drop in November it did leave Q4 as consistent with prior quarters of heavy declines – which are then followed by significant liquidation events or global disruptions.