China’s factory sector eased for a third consecutive month in September, suggesting that the world’s second-largest economy is not immune to global headwinds, while factory inflation quickened.

Credit Suisse put that number at $436 billion in 10-year equivalents from the market, more than the roughly $412 billion pulled out of the Treasury market during QE2. Goldman Sachs analysts estimate the impact at roughly $400 billion.

Are foreign central banks rejecting Operation Twist? Are they using these low yields to finally diversify away from Treasuries? While I don’t have a direct answer for these questions, I would argue the sales in US Treasury and agency holdings are more directly related to the dollar. It’s well known that up to a few weeks ago, emerging market central banks from South America to Asia have been fighting appreciation of their currencies often driven by capital inflow and investments seeking yield and return with developed world rates extremely low. The “EM outperform DM” theme has been with us for some time. In order to slow the appreciation of their currencies, these countries have, among other things, sold their own currencies to buy dollars. This in turn builds up their $ reserves. Those dollar reserves end up generally being invested in Treasuries and in some cases agencies or agency MBS. Note I am greatly generalizing here, not all nations fit this description of course.