Move Over China: Beijing Sells Whopping $34.2 Billion Treasuries In December As Japan Becomes Largest Official Holder Of US Debt

Tyler Durden's picture

Gradually we are getting confirmation that Chinese "posturing" about offloading US debt is all too real. The most recent TIC data confirmed the Treasury's greatest nightmare: China is now dumping US bonds. In December China sold $34.2 billion of debt ($38.8 billion in Bills sold offset by $4.6 billion in Bonds purchased), lowering its total holdings $755.4 billion, the lowest since February 2009, and for the first time in many years relinquishing the top US debt holder spot to Japan, which bought $11.5 billion (mostly in Bonds, selling $1.4 billion Bills) bringing its total to $768.8 billion. Also, very oddly, the surge in UK holding continues, providing yet another clue as to the identity if the "direct bidder" - as we first assumed, these are merely UK centers transacting primarily on behalf of China as well as hedge funds, which are accumulating US debt under the radar. UK holdings increased from $230.7 billion to $302.5 billion in December: a stunning $70 billion increase in a two month span. Yet, with the identity of the UK-based buyers a secret, it really could be anyone... Anyone with very deep pockets.

We will go through the TIC data in much more detail later; for now here is the official press release.

February 16, 2010
tg548

TREASURY INTERNATIONAL CAPITAL DATA FOR DECEMBER

WASHINGTON
– The U.S. Department of the Treasury today released Treasury
International Capital (TIC) data for December 2009. The next release,
which will report on data for January 2010, is scheduled for March 15,
2010.

Net foreign purchases of long-term securities were $63.3 billion.

  • Net foreign purchases of long-term U.S. securities were $82.2
    billion. Of this, net purchases by private foreign investors were $62.6
    billion, and net purchases by foreign official institutions were $19.6
    billion.
  • U.S. residents purchased a net $18.9 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $50.9 billion.

Foreign holdings of dollar-denominated short-term U.S.
securities, including Treasury bills, and other custody liabilities
decreased $67.7 billion. Foreign holdings of Treasury bills decreased
$53.0 billion.

Banks' own net dollar-denominated liabilities to foreign residents increased $77.7 billion.

Monthly net TIC flows were
$60.9 billion. Of this, net foreign private flows were $82.0 billion,
and net foreign official flows were negative $21.1 billion.

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10044's picture

Question is, what they've bought with the money instead? Fannie paper??!

Anonymous's picture

they're buying gold indeed

Anonymous's picture

What from their own mines? On the open market? For
what? Owning Gold in any form is part of their culture.
And they are rolling in dough over there. No surprise
like India gold represents a myriad of symbols in their
culture. Your remark shrouded in mystery, open ended,
no qualifiers suggests your long ETF's looking to
get out at a substantial profit. How about this
one? They sold treasuries to buy gold for their uptick
in jewelry demand on the mainland as everyone is
running out of things to buy with all their dough and
owning four houses has them covered for generations
to have a roof over their heads plus they have no
more vacation time this year and how many times can
you go to Hawaii anyway? Seeing as Formosa is out this year as a vacation destination. See if someone at GS is willing
to write a CDS on that trade. Then you could trade the
CDS to keep you busy if your looking for something to
do. Take into account time spent for rumor mongering
integral to successful CDS trading. Go get em Tiger cub.

Karston1234's picture

This is really very interesting to say the least.
Doctorate Degree
Online Nursing Degree

Anonymous's picture

No they are responding to a global slowdown in exports
China is a net importer for almost everything with
a yuan pegged to the dollar on balance they are
spending more dollars then they are taking in. Because the dollar has appreciated 10% against the Euro of late
and the EU is a big export client of China net net it's
bad for you Walmart shoppers out there. Consider
the US Tsy holdings of China as their country checking
account with bills the most liq. to pay for running the
country. If China is buying longer dated bonds they
are merely tinkering with the average duration of
their portfolio taking advantage of higher rates
on the long end of the curve. Something to keep in
mind Bank of China can, and does investing on behalf
of their central bank and they have banking hubs in
most major financial centers in the EU. Mystery direct bidders could very well be them via an artery of the Bank of China. In Chinese DNA is stealth and secrecy. Which
I suppose to many, makes them an endless source of
fascination. End of the day you may not like their
style in the world of commerce but they do make a mean
dumpling.

Anonymous's picture

One last thought. Nothing prevents China from buying
treasuries through some other financial entity. That
could be anyone and anywhere and in such a manner they
split up the order so it looks like a normal
business as usual bid from whomever is placing it.
There is nothing illegal in that. Just sneaky and
don't count China out in the sneakiness department.
They wear the crown in this regard. Deception is their
middle name.

Anonymous's picture

wow, a sane rational mostly right comment on the chinese currency peg. I wonder how many folks who read/post understand how a currency peg works. Don't fall for the trope about household savings, that is an apples to oranges comparison (social security contributions are "consumption" and "consume" almost 10% of household income and easily rivals chinese household savings.) The Chinese government has all these dollars in Treasury instruments because they are running a lending operation with negative carry. They "borrow" (confiscate at the border) all the dollars it takes to keep the two currencies at the peg exchange rate. The Chinese exporters from whom the government has "borrowed" from get a nice Chinese issued bond payable in dollars and sporting a handsome 4.5% coupon. Their "borrowings" are then lent to us (or US if you prefer) in a Treasury portfolio yielding less than 2.5%. At some point the Chinese government will not have enough dollars to pay off their bonds. End of the day, currency pegs are very expensive to maintain.

Anonymous's picture

All you guys missed the good news. Japan is now again
the largest holder of our debt. They may be Asian but
at least they are not Communist. Now when their
nose gets bent out of joint because Obama wants
to meditate with the Dalai Lama, they can't threaten
financial nuclear attack as a bargaining tool. With
any luck imports will exceed exports for awhile and
we get rid of them for good. Unfortunately we are
the only game in global town for a large, liquid,
transparent investment market. Damn I think they are
here to stay as the elephant in the room that likes
peanuts. Point one their holdings-Who cares? Point two-
the wherefores on the reality of it all-Who cares?
Go do something useful and healthy with your time
shovel snow, build a town out of legos, play with the dog, finish the jigsaw puzzle you started Sat., go rebuild Haiti.....

MarketTruth's picture

Hmmmm UK-based you say... very deep pockets... perhaps the House of Rothschild? After all, they do own a portion of the United States private printing press owner Federal Reserve. Maybe it was the Warburgs (Germany) or the Lazard Brothers?

www.save-a-patriot.org/files/view/whofed.html

asdf's picture

maybe the china foreign office?! The PBoC has offices in the UK and HK. They buy through their foreign offices to "hide" (ok, it's not really a secret) that they already own more than 3 trillion dollars instead of "only" 2.

Anonymous's picture

Who knows? And why do you care? You could spend the
rest of your life following their labyrinth of puzzles in puzzles. Bottom line: How much money would you make off them if they were a client and are you a part of the inner
circle? Something tells me the color of your skin and
your eyes would cause them to politely shut the door
in your face when you came knocking. Unless, you were
the pizza delivery man they got alot of mouths to
feed in their extended family and stomachs to fill to
keep the engine going and make everyone happy campers.
It's a pesky detail when you got 1.3 billion people. In
their neck of the woods they may just elect to cull
the herd and then as Joe Q citizen your in the egg
drop soup! Literally they got some weird ass eating
habits over there.

Bylinka's picture
Bylinka (not verified) Feb 16, 2010 10:47 AM

Dear Tyler, having been aware of "special relationship" between the US and UK, why do not you think that US Fed could be someone buying UST under UK's off-shore cover. And what is the point of China being an open seller and a hidden direct buyer at the same time?

Shameful's picture

That's what bothers me about China being a buyer secretly, I can't fathom a reason. They already have enough $$$ to be used as a weapon if they want, their position is so large it will be hard to unwind with causing problems, and they know the dollar is a long term loser because of American fiscal and monetary policy.

I'm thinking it's more likely to be a central bank like the Fed. After all it was reported on this website the huge amount of treasuries they purchased last year maybe they are trying to change it up to keep the Tylers and Marlas of the world off the track?

Bylinka's picture
Bylinka (not verified) Shameful Feb 16, 2010 11:01 AM

Yes, that was exactly what I was thinking of too.

Tethys's picture

Only reason I could think of would be to provide an anonymous weapon - they could sell off their accumulated under-the-table holdings all at once to provide an economic blow at an opportune time while whistling innocently and pointing out that their overall known holdings did not decrease significantly.  This would make it harder for the US to justify a response to the attack, or know who the attacker was.

Seems a bit tenuous given the money trail pointed out by nonclaim's comment below, so I'm guessing the fed as well.

Anonymous's picture

they want to secretly keep devaluing their currency?

nonclaim's picture

Do not assume China (or anybody else) can move this much money and stay hidden. It may not be officially known but it is not unknown as money leaves a distinct trail and nobody, in their right mind, would participate in a trade with an unverified/untrusted party, the clearer specially.

And what is the point of China being an open seller and a hidden direct buyer at the same time?

It is a way to "roll" into instruments with different term dates.

Anonymous's picture

My thoughts EXACTLY.

Anonymous's picture

And mine

thomasstreet's picture

This deserves a repost: PAUL CRAIG ROBERTS: AMERICA—A COUNTRY OF SERFS RULED BY OLIGARCHS

The media has headlined good economic news: fourth quarter GDP growth of 5.7 percent ("the recession is over"), Jan. retail sales up, productivity up in 4th quarter, the dollar is gaining strength. Is any of it true? What does it mean? Or is it all a lie

The 5.7 percent growth figure is a guesstimate made in advance of the release of the U.S. trade deficit statistic. It assumed that the U.S. trade deficit would show an improvement. When the trade deficit was released a few days later, it showed a deterioration, knocking the 5.7 percent growth figure down to 4.6 percent. Much of the remaining GDP growth consists of inventory accumulation.
Resd the rest here

Anonymous's picture

To confuse you. They want to create the illusion
they are sellers as a political statement while secret
buyers as smart as hell country managers. Think before
you ask questions. Confucious once said
"That was easy no challenge in this". It's a sport for
them like football is to us. They like busy beavers
and they are just giving you busy work while they
tackle the important stuff like running a big business
China Inc.

Anonymous's picture

It's easy isn't it? The UK buys the US debt, the US buys the UK debt - net change between the two, zero, but it looks as though the auctions are going well!

DavidC

Anonymous's picture

I post never and read often ... so I ask in the hope that one wiser than I will respond: does this notion have a glaring flaw that I'm missing? If buying time in the *hope* that crisis will avert itself is the name of the political game these days, is this not Occam's Razor?

WaterWings's picture

It's a big stare down with a knife at each other's throat. Nobody wants to blink (collapse) first. 40,000,000 foodstampers, and growing, with no job prospects on the horizon...we should have collapsed already. The Chinese are facing a major slowdown...with workers returning to bleak agricultural life again...civil unrest is already ongoing (brutal crackdowns and non-existent press coverage)...

There is no recovery...only bankers pulling down windfall profits each quarter. This is, and always has been, a typical prelude to war. Winner takes all?

http://www.youtube.com/watch?v=Bv4UqrWV2_U

Big (warmongering imperial) kid on the block stumbles...put your money on a food fight.

Crab Cake's picture

China's military controls that country, and did not the Chinese military plead to the world to sell treasuries?  Did we expect otherwise from them?

"confirmed the Treasury's greatest nightmare"

We have been "softly landed" on a precipice that is giving way no matter what anyone says or does.  It might be today, tomorrow, or five or ten years from now, but the default station destiation is clear in the distance.

Jubilee please, thank you.

Zexe's picture

China has enough of US debt, I don;t think they want more. For sure the direct bidder is a central bank, most likely the Fed, buy debt. Because, little by little, in a not too distant future, no one will want US debt anymore...the Fed will be the only one buying UST. Regardless, deflation will prevail, US cannot escape liquidity trap. 

Crab Cake's picture

"Regardless, deflation will prevail...."

It does feel like we are rounding another bend on the spiral of deflation, what with the sovereigns and CRE ready to default, no?

asdf's picture

"China has enough of US debt, I don;t think they want more."

 

they don't buy treasuries because they like them, they buy it because they need to recycle their surplus somehow. As long as they have a huge trade surplus with the US, they will buy treasuries.

DosZap's picture

Since their SO  WISE, I  would be easing out ASAP..................

Buying more, would equal  Brain Dead.

The secret DEEP  POCKETS, is none other than ther Fed.........

Just a way  to monetize the debt, under the radar.

Anonymous's picture

Liquidity is one thing, solvency is another subject entirely. With the baby boombers retiring soon, and benefits coming online the US will have no choice but to print and devalue the dollar. If they do not savings would skyrocket and the US consumer economy would collapse.

Even then the value of a currency is based upon a nations output, when the consumer economy collapses what is supposed to replace it? GDP would collapse as well thus driving the dollar down. The banks were already overleveraged a decade ago and still lent to the public. There has only been inflation not deflation for the past ten years, the only difference with 2008 is that more capital derived from that bout of inflation went into US Government debt and dollars more so than other asset classes. That capital used to purchase to US debt and dollars was fraudulently issued by US banks which then powered US creditors/exporters to begin with.

Anonymous's picture

I've got news for the bulls. The reflation trade is dead. The government's lying to you. The economy is not recovering. It's deteriorating rapidly. You stupid fuckers shouldn't have drank the kool-aid. The market's about to crash. The criminal Federal Reserve is losing control of the market.

Oso's picture

the near complete absence of ANY volume pretty much means that the majority of people dont really believe this rally.  But, because of the perverse incentive to be invested, idiot money managers wont get out until everyone else is forced to.  It doesnt matter if you lose peoples' money, as long as everyone else is losing it at the same time.

 

To this point, however, doesnt unloading treasuries seem to be in-line with a currency revaluation...?  You'd want to buy back as many yuan before revaluing upwards, no?

Anonymous's picture

Could the secret buyer is Fed?

Cyan Lite's picture

Doesn't this mean a weaker dollar, and thus green shoots?

Anonymous's picture

Buy gold, it's not too late yet.

loki's picture

Up $25 already today....  was hoping, praying for the "9" handle to back up the truck but no such luck. 

 

Please please please, just one giant dip so I can get a bit more?? 

 

Anonymous's picture

Two weeks ago, I was waiting for the 950 to buy with
both of my hands. However, my friend, a gold coin
dealer, told me "no way."

THE DORK OF CORK's picture

Its the Greeks , Irish ,Portuguese and the Spanish - they are converting their euros into FRNs before their paper is converted into Drachmas , punts ,escudos and pesetas.

Only joking..... I hope.

bugs_'s picture

My thoughts exactly.  No joke.  Perhaps not the
governments but the oligarchs' families.

Anonymous's picture

If you were Chinese, what would you do?

merehuman's picture

If i were chinese i would be whistling.

New roads, new cars and more spending power plus a little gold as the state suggests. Yes im a yellow fellow and i own the world. Jusy feeling grateful the long term plan to put the usa down has worked. And our banker friends in the usa were a big help.

Anonymous's picture

The mechanics of what they did probably increased their expsoure to the U.S. They sold their ultra short paper and bought the long end? That's not really an expression of nervousness on a credit.

Alex in SFBA's picture

It's inevitable. US imports dropped by $70 bil a year, almost all of it at China's expense. China, on the other hand, is on the stimulus rampage building train service to nowhere, empty offices and appartments. All of it requires resources, which require dollars. They don't have a choice but to sell their holdings to keep the music going on a little longer..

I beleive the money that doesn't go to China now will easily find it's way to UST. In other words, we're going from this:

US consumer -> China -> UST, to this

US consumer -> UST.

 

Oso's picture

exactly.  once all of this is exhausted, then yields will rise permanently.  but not yet.  not yet.

Anonymous's picture

People in Europe were saying the same thing about America's infrastructure buildup during the 19th century. China's stimulus and investments have been more efficient and targeted approaches.

Anonymous's picture

Quid pro quo, you buy our useless paper and we will support the market in yours. How many gilts has the Fed got?

Either that or the markets are lining up for a complete £ collapse.

Going Down's picture

 

"China is now dumping US bonds"

 

First off, I would not call a 4.5% decline in one asset class "dumping." For a few years now China has been realigning its foreign reserve positions; for USD-denominated assets, the most significant trend is the shift from Agencies to Treasuries (and to a limited extent direct equity investments through its sovereign wealth fund). Because China's accumulated USD reserves comprise a disproportionate share of total FX holdings (around 80% if I remember correctly), it makes perfect investment sense to diversify.

 

In its drive to diversify, you will note a distinct focus on natural resources. Not to say that the USD will be worthless but when a country has $2T to $3T saved, it makes perfect sense to "dump" 4.5% of your paper for commodities, including gold.

 

If and when China truly "dumps" its Treasuries, you will see the price action in markets all around the world. The fall would be simultaneous, explosive even, and no other investor will be fast enough to get out of their positions. Why? Because it would be war.

 

Cyan Lite's picture

Agreed, sensationalist headline...