Wall Street's Pile of Unwanted Treasuries Exposes Market Cracks

The 22 primary dealers held more Treasuries last month than any time in the last two years, Federal Reserve Bank of New York data show. While at first glance that may suggest a bullish stance, the surge in holdings is more likely the result of investors including central banks dumping the debt on the firms, said JPMorgan Chase & Co. strategist Jay Barry. Foreign official accounts sold a net $105 billion of the securities in December and January, an unprecedented liquidation, Treasury Department data show.

Strategists say there are signs that the buildup of Treasuries held by dealers is having a ripple effect, mucking up the plumbing of the financial system. While the holdings show they did their job by soaking up the supply from central banks raising cash to support their currencies, it's adding to questions about the resilience of the world's most important market. The Treasury Department is already looking into whether the market isn't operating as smoothly as it should.