China and Russia Sell US Treasuries
China and Russia Sell US Treasuries
By Michael Mackenzie in New York
China has sold billions of dollars in US Treasury bills for the second month in a row, even as strong buying from other foreign investors countered Beijing’s move to reduce its holdings.
A Treasury report on Tuesday showed net foreign demand for long-term US securities, including bonds and equities, was $41.8bn in December, versus $64.5bn in November. Monthly net Treasury International Capital flows rose to $48.2bn in December, up from $35.6bn in November and $17.2bn in October. The rise was driven by private investors, while official accounts, or foreign central banks, sold US assets for the second successive month.
Foreign private investor demand for US long-dated government debt remained solid in December and US Treasuries with maturities of more than a year recorded inflows of $55bn. But, short-term bills suffered a $37bn fall, after November’s $32bn drop.
Alan Ruskin, strategist at Deutsche Bank, said the mixed flows reflected foreign interest in longer-term Treasuries as yields rose. China, for example, bought $5bn of bonds and notes in December, but sold $9bn of Treasury bills. “The negative take for the bond market is that China reduced its overall Treasury holdings, but they have increased their exposure to US interest rates by buying longer-term Treasuries,” said David Ader, strategist at CRT Capital. “It is an important distinction.”
Russia also pared its Treasury holdings for the second month, down to $106bn from $122bn.
But the UK continued to drive demand for Treasuries with a rise to $541bn, up from $512bn in November and $208bn in January last year. That increase, according to analysts, reflected the UK’s status as a financial centre where Treasuries are bought by investors who are not domiciled in the country.
“Some of China’s Treasury purchases may also be showing up in UK-sourced data that has been consistently strong, but nonetheless, it looks like China was more actively trying to dodge the Treasury sell-off than most,” said Mr Ruskin.
Indeed, when the Treasury revises its data later this year the share of UK Treasury holdings is expected to drop sharply.
China remained the largest foreign holder of Treasuries at $892bn in December, down from $896bn the prior month. “According to these, admittedly backward-looking data, there is little immediate cause for concern that non-US investors are losing their appetite for US securities,” said Jeffrey Young, strategist at Barclays Capital. He estimated that the December inflow represented an annualised rate of about $575bn, enough to cover the US current account deficit.
Caribbean Banking Centres, a proxy for hedge funds, increased their holdings of Treasuries to $156bn in December, up from $139bn in October. Singapore and oil exporting countries also increased their Treasury holdings.
“This report points to continued strong demand for US securities among foreign investors and officials, underscoring the ease at which the Treasury is able to fund its borrowing needs in the open market,” said Millan Mulraine at TD Securities. Prices of US Treasuries rose slightly on Tuesday as the Federal Reserve bought almost $6.7bn of intermediate-dated debt. The yield on the 10-year note was 3.6 per cent.
editors note: Bernanke said China holds at least $2 trillion of U.S. government bonds. That is more than double the widely cited official figure, which is published monthly by Treasury.
As the Bernanke continues this shell game of treasuries transferring from country to country based on inflation rates in those countries, he will run out of suckers at some point.
The american citizen will then be asked to buy worthless patriotic paper. If the U.S. Government shuts down on March 4 expect China and the rest of the world to stop buying U.S. Debt.