Central banks and Treasury buying

The strongest buyers for US Treasuries for the last two years have been central banks, yet this demand is changing with the continued low interest rates. China, Hong Kong, and Russia have all been sellers of Treasuries while Japan, UK and Switzerland have been buyers. More recently, the Swiss have been sellers since setting their currency peg with the Euro. Japan buying was a direct result of intervention which comes in waves. 

Foreign holder represent about 48% of the $10 trillion in US Treasuries outstanding. Much of this demand is from central banks. There is less demand for Treasuries when currencies are declining because there is less need to intervene in the foreign exchange markets, but there is also less need for Treasuries at the current low yields. The lower demand for Treasuries from foreign central banks have been offset by Treasury purchase last year. US purchases from Operation Twist negated the lower demand from abroad. The question is what will happen to US yields if there is no central bank buying from any source. If Treasury demand is only a reflection of private demand the volatility and price dynamics of 2012 will be different than last year. Without QE3, there will be more bond volatility.