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The Mystery Of Chinese Treasury Holdings

Tyler Durden's picture


Frequent readers are aware that in the past month, Zero Hedge has speculated on both the direction of Chinese UST holdings as well as the identity of the direct bidders. Our thesis, presented over a month ago, was that Chinese accounts, operating as UK-based direct-bidders, are perpetuating a form of covert easing, by buying treasuries which never hit the TIC account as a Chinese counterparty and thus remain under the radar, being relegated to UK purchases for all official purposes (whose holdings have spiked in 2009). To be sure, this theory was met with some skepticism within the Zero Hedge community. The just released TIC data, which highlighted the biggest monthly drop in Chinese holdings in years (and biggest UK holdings surge), provides yet another piece of the puzzle, has increasingly led experts to concede that something is off about Treasury holding patterns. (No such ambiguity exists when it comes to MBS: everyone is hitting the Fed's bid there).

Market News quote Stone & McCarthy analyst Nancy Houten:

"A number of press outlets are concluding that Japan surpassed China in December as the largest holder of Treasury securities," a conclusion they drew "based on a table of foreign holdings of Treasury securities published each month by Treasury as part of the broad Treasury International Capital (TIC) data," she said.

"And Treasury's table of foreign holders of Treasuries indeed showed Japan with $768.8 billion in December, up from $757.3 billion in November, and China with $755.4 billion, down from $789.6 billion," she added.

She stressed that "it's important to understand how Treasury comes up with those figures, however" as for "for foreign holdings of Treasury bills, the figures come from TIC reports on short-term liabilities to foreigners that are held by customers of U.S. banks and brokers/dealers of securities. The short-term liability data tend to be a fairly accurate measure of a foreign country's actual holdings of short-term U.S. securities at a given point in time."

But the SMRA analyst cautioned that "for both China and Japan, Treasury bills make up less than 10% of their total Treasury holdings; notes and bonds make up more than 90% of their total Treasury holdings. And Treasury's estimate of foreign holdings of notes and bonds is a much rougher gauge of actual holdings" as Treasury gets that estimate from adding monthly net purchases of Treasuries from the monthly TIC data to the level of each country's actual holdings identified by the Treasury's latest recent annual survey.

The problem arises, she added, since the "monthly transaction data are subject to certain biases" with the "most significant bias" that "the TIC data attribute transactions to the countries where the counterparties are located, and one of the counterparties must be in the U.S. As an example, purchases of Treasuries by China would reflect only purchases by an entity in China from an entity based in the U.S. The data wouldn't pick up purchases done on behalf of Chinese investors by dealers in the UK or Hong Kong, for example, nor would it pick up purchases of Treasuries by investors in China from investors based outside of the U.S."

 Some view the TICS data as open to interpretation. One trader noted that "hopefully," the Chinese selling in T-bills meant that "they are getting ready to re-load" soon by buying Treasury coupons in an "opportunistic" fashion. "Or else, they are putting the screws to us" in the United States by selling Treasuries, he added.

"They also say, the Chinese could be buying offshore" in locations where Treasury data would not pick up that buying as being from China, he added. "This (Chinese buying offshore) could be where the indirects bids are coming from."

One key observation that we have ignored, is that China may not be actively selling its securities, but merely letting Bills roll off without replenishing. The difference is minor but nuanced, as it represents a slightly smaller degree of "revulsion" with holding US debt.

A different trader agreed that the TICS data are open to interpretations but said, "I think the Chinese let the bill maturities roll off" without being immediately replaced. "They were not selling," he added. "It was more the bill maturities rolling off. I don't think too much has changed."

But he agreed that "that is always the big fear in the market, that they would be selling," however he felt that was not happening, but more China allowing maturing T-bills to roll off in December, with the view to replace such holdings later at a higher yield in the Treasury coupons. "They would replace them later on," said the trader. 

A notable quantification catalyst will be next Friday's release of the Treasury's survey of foreign holdings of U.S. securities which will stratify UST holdings much more accurately . The only problem is that it will provide a snapshot as of June 2009, thus not really providing much clarity into the recent transfer of holdings.

All this data has to be considered in light of the big picture in recent holding changes by foreigners: while Bill holdings by overseas institutions have remained close to their peak at about 40%, foreign Bond holdings have steadily declined from a peak about 65% to the current level of about 50%, even as overall Bond issuance has skyrockted. The Fed's UST purchasing impact has been felt most acutely in the long-dated side of the curve. If China has indeed plateaued, just who will take its place? And no, contrary to December data, the answer is not the UK, who will soon have other major problems to deal with than buying US treasuries.


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Wed, 02/17/2010 - 21:27 | 234911 waterdog
waterdog's picture

We do not know who is buying what from whom. We do not know who owns what.


Wed, 02/17/2010 - 22:54 | 234995 VegasBD
VegasBD's picture

What are you talking about, this is the most transparent Fed EVER.

Thats why congress just reconfirmed Benny "Mugabee" Bernanke.

ughhh, this is gonna end well.


Thu, 02/18/2010 - 00:46 | 235095 Shameful
Shameful's picture

That's because they were not man enough to pick Gideon Gono.  So now we are stuck with his understudy...

Thu, 02/18/2010 - 01:46 | 235138 faustian bargain
faustian bargain's picture

Gono FTW!

Wed, 02/17/2010 - 22:57 | 235001 bugs_
bugs_'s picture

Whoever is buying ... do they know what they bought? LOL


Thu, 02/18/2010 - 09:41 | 235285 MarketTruth
MarketTruth's picture

If they were smart they would be buying physical gold. Perhaps from the IMF, though that will sell very fast so open market may be their best chance.

Thu, 02/18/2010 - 05:46 | 235223 Anonymous
Anonymous's picture

I'd say it is the Fed and not the Chinese who are buying through the UK.

But I'm just guessin'... it's not the first time US and UK central bankers have been in cahoots.

Wed, 02/17/2010 - 21:29 | 234915 Cursive
Cursive's picture

What is the permabid under bonds?  Ancient Chinese secret....

Wed, 02/17/2010 - 21:42 | 234929 Lionhead
Lionhead's picture

Chinese secret is actually UST does not want you to know who is "buying" or when. TIC reports are purposely obfuscated & stale when released. As for the permabid, the same "invisible buyer" Charles Biderman is looking for in equities. The public is not to know such facts. Time for a "TV" dinner & some Kool-Aid...

Wed, 02/17/2010 - 21:32 | 234918 Anonymous
Anonymous's picture

"So WHAT is the IVAMU?"


End the Fed, and ADVANCE the PLAN to REPLACE the Money!

Wed, 02/17/2010 - 21:58 | 234947 Anonymous
Anonymous's picture

Go back and read some of Brad Setser's old blogs. ( He had a pretty good insight into the actual level of Chinese purchases based on their purchases through London. I miss his detailed analysis of the TIC data.

Maybe that's why they gave him a job at the National Economic shut him up.

Thu, 02/18/2010 - 00:09 | 235078 Anonymous
Anonymous's picture

I miss Brad too.......and they did shut him up.

Wed, 02/17/2010 - 22:16 | 234962 Harbourcity
Harbourcity's picture

Why does this matter if the FED can just pick up the slack...?  Or maybe a "friendly" country will pick up the slack since if the US goes tits up, they are pretty much screwed too.  This whole discussion is all semantics in the end any ways.


Wed, 02/17/2010 - 23:03 | 235013 saturno_v
saturno_v's picture


It does matter...the Fed explicit buying is a very bad sign for the market (it is effectively money printing under the sun)

This is the see the Fed admitted QE so they are "covered", the general investing public is not suspicious....what the Fed does nto tell you is the real amount of their buying.......they admit a certain percentage but the reality is much worse

Thu, 02/18/2010 - 02:22 | 235156 Harbourcity
Harbourcity's picture

No it doesn't matter because nothing will change.

The public are ignorant and lazy.

It isn't until they go to the bank and all the money is gone that they'll ask the obvious question of where it all went. 


Thu, 02/18/2010 - 05:40 | 235221 merehuman
merehuman's picture

Public ignorant and lazy has some truth, but what the hell would you have us do?

We called.. and were ignored

We wrote ..and were ignored

We protested...were ignored

If we protest violently we will be squashed

So what should we , the ignorant be doing?

What are YOU  who is not ignorant or lazy doing? waiting for me?

If you are still trading the market , you are assisting the enemy! And no better than them.

I have worked for an unethical company and quit them. It cost me dollars, but i kept my integrety

Wed, 02/17/2010 - 22:19 | 234966 RobotTrader
RobotTrader's picture

Any and all stock market corrections, convulsions, or conflagrations will result in maniacal panic buying of U.S. Treasuries.

Wash, Rinse, Repeat....

Wed, 02/17/2010 - 22:57 | 235002 VegasBD
VegasBD's picture

There is a limit to how many times this can happen.

Weve started to see the first few hints of decoupling. Finally.

Keep kickin that can guys, no road goes on forever...

Thu, 02/18/2010 - 09:59 | 235290 THE DORK OF CORK
THE DORK OF CORK's picture

It does if it girdles the planet.

I have said this before and I will say it again

There are two types of bitches in this world

Gold Bitches and Dollar Bitches - take your pick.

Thu, 02/18/2010 - 03:00 | 235180 akak
akak's picture

No, I think not again.

Even for the sheeple, it's still "Fool me once, shame on me --- fool me twice, shame on you."

Thu, 02/18/2010 - 05:43 | 235222 merehuman
merehuman's picture

did you learn that from george? He got it wrong too.

Fool me once shame on you

fool me twice shame on me

Hope you understand the difference

Wed, 02/17/2010 - 22:57 | 235003 glenlloyd
glenlloyd's picture

Seems odd, I would consider knowing "who is buying what" as systemically important. Odd how the Treserve seems to be rather unconcerned about this.

Wed, 02/17/2010 - 23:00 | 235007 Anonymous
Anonymous's picture



This is for you. You're a smart young man, much more educated about money than most your age. However your point of view and your horizon perspective are two very different things. You've stated here that you're in your 20s in college.

Enjoy it! But, prepare for the future and remember that many who post here are not trading for a 1yr growth measure. Most realize something is very very wrong, and are planning accordingly.

Both of my Grandfathers were in their mid 30s when the Great Depression hit. They both lost DEPOSITS (not stocks) in magnitude that would buy a house back then. What little savings and earning power they had left was immediately devalued by executive order.

If you remember nothing else, remember these two things:

1.) You will understand "money" much differently when you're in your 60s than in your 20s.

2.) Don't forget what you read in this link from Mr. Willie:


Wed, 02/17/2010 - 23:00 | 235009 Anonymous
Anonymous's picture

I am surprised at how many people in the financial world are now aware of what a scam the Federal Reserve and fractional reserve banking system is. These international bankers have been robbing the US since 1913 when the Federal Reserve began. It's not Federal and they have no reserves, only a printing press. Yet so few in the financial world are aware of the history and what is really going on!

Thu, 02/18/2010 - 11:43 | 235407 mouser98
mouser98's picture

i have friends who have degrees in Economics that tell me the Federal Reserve system and its history are not taught.  it's no accident.

Wed, 02/17/2010 - 23:16 | 235025 Anonymous
Anonymous's picture

Are their current Chinese reserve numbers?

Why would China act to hide their purchases?

Wed, 02/17/2010 - 23:47 | 235065 Anonymous
Anonymous's picture

most likely it is Fed who is buying themselves with the help of its buddy. If you know Chinese gov's mentality, this is not what they will do. Buy UST is give the US face, it is do US a big favor. why they want to do it secretely. This doesn't make sense to me at all.

Wed, 02/17/2010 - 23:52 | 235068 aus_punter
aus_punter's picture

maybe they are just letting their bills mature and rolling down the curve - would see a fairly sensible strategy in this environment no ?

Wed, 02/17/2010 - 23:56 | 235071 Going Down
Going Down's picture


"If China has indeed plateaued, just who will take its place?"


Why quibble about China or Japan when it appears likely that the two largest owners of Treasuries--domestic or foreign--are likely to continue buying: the Fed (with $5.127 Trillion) and "Other" (with $1.114 Trillion).


"Just who are those guys?"


Thu, 02/18/2010 - 09:42 | 235286 MarketTruth
MarketTruth's picture

Who owns the Fed, am glad you asked:

Thu, 02/18/2010 - 10:00 | 235291 Going Down
Going Down's picture


So no Goldmans, Sachses or Greenbergs in the genealogy? So GS doing in AIG is nothing but a gang fight on the Lower East Side. Will GS take on JP Morgan next? After they've destroyed the world perhaps.


Thu, 02/18/2010 - 11:51 | 235420 mouser98
mouser98's picture

there has got to be a Rothschild hellspawn behind GS somewhere.

Wed, 02/17/2010 - 23:59 | 235072 Anonymous
Anonymous's picture

If thinking that the Chinese are buying through the back door does it for you -hey, whatever rocks your boat luv

Thu, 02/18/2010 - 00:01 | 235075 Anonymous
Anonymous's picture

the real story is not the chinese buying bonds in the uk but uncle ben buying bonds in the cayman islands...

Thu, 02/18/2010 - 00:23 | 235084 Madcow
Madcow's picture

They can pretend they're getting "money" from "foreign investors" to "invest" in "treasury securities" for a long long time. Who's going to audit the FED, the UST, or the Chinese Government? Or the EU? Or the IMF?  

No one, that's who. So what's the problem?

The problem is that the underlying global economy is rapidly deteriorating. Assets are being artificially raised and subsidized, and costs are being repressed and subsidize (especially energy) in ways that are simply not sustainable. 

There is no way around a 50% - at least - loss in the global purchasing power of US financial assets - including the US Dollar. 



Thu, 02/18/2010 - 00:23 | 235085 Madcow
Madcow's picture

They can pretend they're getting "money" from "foreign investors" to "invest" in "treasury securities" for a long long time. Who's going to audit the FED, the UST, or the Chinese Government? Or the EU? Or the IMF?  

No one, that's who. So what's the problem?

The problem is that the underlying global economy is rapidly deteriorating. Assets are being artificially raised and subsidized, and costs are being repressed and subsidize (especially energy) in ways that are simply not sustainable. 

There is no way around a 50% - at least - loss in the global purchasing power of US financial assets - including the US Dollar. 



Thu, 02/18/2010 - 01:39 | 235124 Comrade de Chaos
Comrade de Chaos's picture



well, and the price of Greek moral hazard is... only 15 bl.....


it wasn't me !!


wonder who spelled "the swap or else" first, GS or Greeks .

Thu, 02/18/2010 - 02:21 | 235154 Harbourcity
Harbourcity's picture

Whatever.  The US public are sheep.  Ignorant sheep.  It is without irony that it won't be an uprising the brings this all down but an uprising after its all gone.  Then there'll be chaos but those involved with be watching it from their retreats.

Smoke em while you got em.


Thu, 02/18/2010 - 01:45 | 235135 Anonymous
Anonymous's picture

Contrary to Zerohedge's conclusion of China being behind the UK purchase as this contradicts to all the reports about China. On top of this, add this telegraph quote from Ambrose:

China has also been calling for a halt to QE, accusing Washington of "monetizing" its deficit in a stealth default on Treasury bonds.

The UK together with the Caribbean offshores are all fronts for the Fed to monetize the debt. The Chinese knows this that is why they are bailing out. What is not reported here yet is how China is killing the London Metal exchange. Read and listen to Jim Willie's excerpt here on what is happening in the gold markets.

Yes China does send mystery investors in the UK but their plan of attack isn't buying treasuries but they are swapping their paper to physical gold. China aims to have over 10,000 Metric Tons of gold in 5-8 years time. Rumour has it they have decided to speed up the process due to US keep kicking them in the groin.

China has been selling their treasuries and havent bought them since last May. Jim Willie and Jim Sinclair have more inside scoop on this as they have Chinese partners. The other guys that knows more are probably George Soros, Jim Rogers and Marc Faber. Watch how all these investors follow/mimic what China does in every trade. Action speaks louder than words.

By the end of the day the Chinese selling treasuries slowly while the Europeans gulps up the dollar is a brilliant move. Contrary to MOPE, the real number left on Chinese dollar holdings isnt $ 2 Trillion but more around $700 Billion range. They have liquidated a lot of their dollars via buying resources. Look at africa especially Zimbabwe, they are now awash with dollars.

By the end of the day, Peter Schiff will be proven right about all the countries will be exiting in unison creating a panic and China will be riding high. China will in the end shock the world by revaluating their currency at the same time announced that they do not have any more dollar assets as well as no more treasury bills. The massive rush to the exit will occur immediately after this announcement, with the final crack on the US back will be the official announcement of the end of the petro dollar probably to occur a month later after China's official announcement. The US will deteriorate so rapidly at this point that it is no joke. By this time the US may launch a war out of desperation or may descend in social uprising that will result in mass secessions of states.

By the end of the day the nations that will end up holding the bag of worthless dollars will be: Japan, EU, Canada, Australia and the American people. With their nations in turmoil, only Australia and Canada can survive as they will now be forced to barter their resources for new currencies while writing off the dollars as a massive loss. Since these nations cannot recycle these dollars they will descend in major uprising and the geopolitical map will change. Despite their rich resources Canada and Australia with their weak demographics (low population) and weak military may end up being carved up new aggressive players in the new geopolitical map. India, Russia, China, Indonesia and the middle east may want a piece of these nations by the end of the day.

Thu, 02/18/2010 - 02:31 | 235164 Number 156
Number 156's picture

So please excuse me for my ignorance, but if China is indeed buying treasuries under a UK cover, I ask, Why? Whats the motive here?

Thu, 02/18/2010 - 02:46 | 235175 Anonymous
Anonymous's picture

I am pretty sure it is not Chinese if you know the Chinese Goverment's mentality. It looks like the Fed uses his best buddy to cover their money printing.

Thu, 02/18/2010 - 09:29 | 235281 Anton LaVey
Anton LaVey's picture

(a) What makes you think it is China? Could be anyone.

(b) Keep on propping the US economy (= China biggest client) while exploring alternatives (such as starting domestic consumption in earnest) seem to me the best explanation.

Thu, 02/18/2010 - 12:53 | 235546 AnonymousMonetarist
AnonymousMonetarist's picture

The motive is a balance between the internal dissension towards putting the 'people's' money in a depreciating asset with the reality that Treasuries are the most liquid dollar-denominated place to park.

Thu, 02/18/2010 - 14:13 | 235658 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I say it is "China".  Dare not look behind the curtain!

Thu, 02/18/2010 - 04:26 | 235210 Anonymous
Anonymous's picture

The fed is buying their own paper through intermediaries. Weeble-wobble.

Thu, 02/18/2010 - 05:03 | 235216 VegasBD
VegasBD's picture

Three pitchers of beer and you still cant ask? Cmon Ben, tell us, whos buying this shit

Thu, 02/18/2010 - 05:19 | 235217 htp
htp's picture

It is unlikely China is buying under a covert UK account at this point. This isn't early 2009 anymore.

Chinese attitudes towards US Treasuries have changed over the course of the last two years. At the beginning of the crisis, they were afraid other US debt holders would sell, causing their holdings to plunge in value. They did not think about reducing their holdings as the chinamerica arrangement was very much to their favor and cherished.

At that point they thought the crisis was temporary, and everything would quickly go back to the merry old days of 2002-2005. A lot has transpired since then and by now everyone in the world knows the US Fed strategy -- that it has no exit strategy.

Against this back drop and amid all the pressure both domestic and international, China is active looking for a new long term strategy. Though at this point they have not yet worked out a definitive plan for the future regarding both China's own economy and its trade/currency policy, a concensus seems to be forming that they would reduce US debt holdings. The pace will be slow, as long as China continues to enjoy a large trade surplus against the US, but the direction is clear.

The mysterious UK buyer, therefore, can only be the Fed, imo.

Thu, 02/18/2010 - 05:51 | 235224 merehuman
merehuman's picture

Of course i dont KNOW, but i suspect they are VERY pissed at us  re taiwan. And a few other

insults we have sent their way. China is losing face, wants to be the new super power and may show us the error of our ways.

I hope not, but i had hope for Obama, that hope is gone.

Thu, 02/18/2010 - 06:52 | 235239 Anonymous
Anonymous's picture

Big mystery.....sell T-bills to get the sheeple
to run around with their hair on fire while buying
T-bonds to take advantage of the Fed's tiny rate
bump and the withdrawal of excess liquidity as
global deflation sets in.
TBTF Banks likely doing same.

Thu, 02/18/2010 - 06:54 | 235240 Anonymous
Anonymous's picture

Leastways, they'll catch every idiot on the TBT trade.

Thu, 02/18/2010 - 07:58 | 235259 Anonymous
Anonymous's picture

Of course they know who is buying them. The buyer is entered into a database, and paid periodic interest payments, then the full amount at maturity.These are not the "Bearer Bonds" of old where the coupons are clipped and presented to a bank for payment. Who is receiving all the electronic payment transfers? Buy some for yourself and see how it works.

Thu, 02/18/2010 - 09:25 | 235279 Anonymous
Anonymous's picture

I used to work in Hong Kong, three or four years ago. For those who studied China's reserves, and holdings in Treasuries, it was pretty widely accepted that China was buying x amount of Treasuries (where "x" is a significant #) through the UK. Do the math on China's reserves and estimated % (I think about 70%) that are U.S. Treasuries. The numbers don't work unless China is buying a bunch through a foreign proxy somewhere. Why? Well, obviously, China doesn't want to be seen as directly holding too many of the damn things for one. The leadership has made it clear they're unhappy with how many Treasuries they now have but, as long as they persist with an undervalued currency, they will probably be forced to amass more.

Thu, 02/18/2010 - 11:13 | 235336 BernankeCo
BernankeCo's picture


When folks finally see that they can’t just get someone else to pay for all this, there will likely be a
huge tax rebellion
which will cause more short term problems, but may in the long term (hopefully) have the effect of getting the government to manage our money better. In the meantime, let’s hope we don’t have too many large national
, military conflicts, pandemics or the like to deal with. This country is in a lot of trouble and we need to start thinking like Americans instead of Republicans or Democrats if we’re going to get through this. We're still in a depression

Thu, 02/18/2010 - 12:33 | 235511 Anonymous
Anonymous's picture

LOL....climactic sell off in Treasuries, TBT topping,
equities up. The computers must own all
equities now.

Thu, 02/18/2010 - 14:10 | 235652 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Game over.  China is letting the bonds mature, with no thought to re up.  They are off the drug, we are merely watching them stand up and walk away.  Say bye-bye.

Thu, 02/18/2010 - 16:35 | 235998 Anonymous
Anonymous's picture

The Treasury #s are way off. See:
An excerpt:
"Using that data, the Treasury underestimated China’s accumulation of Treasuries by 104 percent in 2006, 237 percent in 2007 and 130 percent in 2008, Vander Houten wrote."
Stone & McCarthy knows their stuff; they've got an office in Beijing. I think they have hypothesized in past that there are some China holdings coming through U.K.
If you want another source:
“Economists here are not entirely convinced that Chinese purchases of Treasuries have declined. The Chinese government has long purchased a lot of bonds through street names in Britain. They have a particular incentive to do so now because of growing concerns in China about the safety of Treasuries.
As I wrote earlier, there used to be a fairly common belief that China was doing this, for you deniers.

Fri, 02/19/2010 - 01:12 | 237162 Anonymous
Anonymous's picture

So far all the sources saying China is behind the UK purchase are not convincing, looks like a Fed propaganda piece to me. There was no facts all a bunch of so called MOPE economist and analyst just telling people about this. I believe there is no grain of truth to this at all.

China does not stand to gain anything in pumping up the US. Contrary to most americans thinking, the truth is the Chinese leaders do not like the Americans and the west. They have long planned to take revenge of the 150 years of humiliation that the west has tormented on China.

Mon, 04/19/2010 - 08:31 | 307591 Tom123456
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