China Persists In Refusing To Buy US Paper As Foreign LTM Purchases Of Treasurys Plunge To Three Year Lows

Tyler Durden's picture

Yesterday's TIC data held two important pieces of data. The first is that in September, the month that Bernanke launched QEternity, for the first time in 2012, foreigners were net sellers of US Treasurys, dumping a total of $17.3 billion in paper, with foreign official institutions selling $919 million and non-official "Other Foreigners" offloading a whopping $18.3 billion: a record amount for this data series! The combined outflow was a dramatic reversal from the August $42.9 billion in purchases, from the $341.8 billion in foreign purchases Year To Date, was the first outflow of 2012, the first since the $13.1 billion sold in December 2011, and finally was the biggest sale in US paper since May 2009, or the month Greece had its first (of many) bailouts. While the reason for this dramatic shift in sentiment toward US paper is not defined, perhaps a primary reason is that in September foreigners bought a whopping $23.8 billion in corporate US stocks, the most since July 2009, and certainly motivated by hope that the latest Bernanke easing would send stocks soaring. Oh how wrong they were to believe that, and to fall for the media's latest attempt to force a rotation out of bonds and into stocks.

Source: TIC

Another way to see the sudden drop off in foreign appetite for US Long-Term Treasurys is the following chart of LTM purchases by Foreigners. At $393 billion, this is the lowest total notional since November 2009.

The second, and even more troubling observation, is that in September China "added" another token $300 million in US paper, keeping its total holdings at $1155.5 billion, or a number that has remained unchanged since December 2011, when the Chinese selloff of US Treasurys concluded, which in turn took down its total from a high of $1315 billion in July 2011. So who has taken China's place as America's best oriental friend? Why that supreme basket case of all debt monetization, both foreign and domestic, Japan, which added another $8 billion in US Treasurys in September, bringing its total to $1131 billion, and just $25 billion shy of overtaking China as the biggest holder of US paper. Just because having Y1 quadrillion  in total debt of your own is not enough.

Source: TIC

For the terminal basket case that is Japan the move makes sense: since having, and monetizing a ridiculous amount of its own debt has done absolutely nothing to weaken the Yen, the Japanese financial authorities are now resorting to the last case option: monetizing others', in this case the US', debt. In doing so Japan gives a glimpse of what the next round of currency warfare, when every currency in the closed Keynesian loop has to hit bottom first or bust, will look like: central banks buying not only their own debt, but the debt of other nations, all in a desperate attempt to crush their own currencies first (except for Europe, of course, to the ECB, currency intervention means keeping the EUR high or else someone may get an idea there is redenomination risk, and proceed to do the ECB's rightful job - which is to sell the EUR - for them).

Finally, those wondering where China is reinvesting its current account surplus, the answer, at least to our readers, has been well-known for a long time.

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williambanzai7's picture

Please do not worry...

prains's picture

He will join the panda known as "Dick"

Popo's picture

China to America:  "About that fiscal cliff?  Yeah.. you're going over it."

Snidley Whipsnae's picture

Bond vigilanties come in various forms. If the sale of US bonds to foreigners is still deemed important then at some point a sound dollar and a rejuvinated US economy will be necessary... and, we are far from either of those.

MMT is in for a real test sometime soon. Be a good boy/girl scout and prepare accordingly. You know... just in case the MMTers are wrong.

onebir's picture

Would "please do not worry" fit on a nice white headband?

AC_Doctor's picture

I am not a bond guru.  Where is the money coming (US Dollars) to pay for all these unexpected bond sales.  Could this be a black swan and is this majorly bullish or bearish for the US Dollar when our bonds are near all time low yields? 

Urban Redneck's picture

They're called Federal Reserve Notes for a reason.

TPTB_r_TBTF's picture

The US Dollars come from cotton and linen with a dab of ink in order to stencil in a dead president's face.


Disclosure:  long cotton

Vampyroteuthis infernalis's picture

Bernanke can print all he wants when the bond market implodes along with everything else. No one will have money for anything. The liquidity tide (deflation) goes out before the tsunami rolls in (inflation) from lack of supply as anyone who made products went bankrupt.

A Lunatic's picture

What's an account surplus?

timbo_em's picture

You know, that thing that the Japanese economy used to create and which helped them to extend and pretend a little longer. But please do not worry.

Urban Redneck's picture

One of these days some excel wizard will put together a simple graph over time showing the percentage of the total Chinese "account surplus" represented  by China's US Treasury holdings.  

Then even the retards can play along.

VonManstein's picture

30 YR looks topped out on the chart. Struggling to move anywhere even with SPX down as it has been.. same for the DX. Bernanke has kneecapped the USD and pushed TSY to the limit...

The path of least resistance is down, way down. We shall see what the terminal velocity of Treasuries is.


Stocks to lead or follow?

max2205's picture

Better rethink that. Ben owns the B market. Bonds near 2010 2011 highs vs the spx now

VonManstein's picture

Ok. Two questions for you sir,

A) are you saying Bonds will never fall (rise) untill Ben Bond allows it to happen?

B) if Ben Bond is all powerfull why isnt the 30yr already at 160?


mr. mirbach's picture

Does this signal the official start of the USD loosing World Reserve Currency status?


prains's picture

"loosing" sounds more like a rectal affliction from too much sangria. my wife has experienced to much "loosing" after having three kids.

IridiumRebel's picture


loosing present participle of loose (Verb)



  1. Set free; release: "the hounds have been loosed".
  2. Untie; unfasten: "the ropes were loosed".
TPTB_r_TBTF's picture

Bretton Woods loosed the US Dollar.

juangrande's picture

In Prain's wife's case, that would be a dangling participle!

Anglo Hondo's picture

Thanks, prains, but I really didn't need to know that.


fonzannoon's picture

At what point does all these tons of physical purchases begin to actually rattle the paper market?

VonManstein's picture

That happend a while ago.

The volume that has been dropped on the COMEX in recent weeks has done 1/5 of what it used to last year or even spring of 2012. The Physical market has underpinned the price and blunted the attemps at causing a flush.

Second, speculative money is becoming more aware of the Physcial market and its implications. This has created a group of highly levereaged strong hands that will not sell.

Spec money will drive this market and physical demand will support it. There really isnt much downside going on here, as you may have noticed.

Al Huxley's picture

Interestingly, Comex commercial short positions actually increased this week (as of Tuesday), even as the price stayed relatively flat-down.  Normal pattern is that Comex commercial short position rises as price of gold rises (somebody has to take the short side of the momo-following spec longs) then they cover on an 'event' that triggers a sudden drop in the POG (say, somebody suddenly developing the overwhelming urge to dump 75 tons on the paper market in one fell swoop). 


The increase in Comex short positions on a flat week suggests to me one of two possible scenarios.

1) An even bigger price drop is coming soon, and this is just the set-up

2) The commercials are getting themselves into a deeper hole, as they're unable to break the price enough to trigger panic selling that they can cover into.


Normally I'd expect option 1 and be looking for a big POG smackdown this week or next, but this feels somehow different, like there's just too much demand on the long side now to make the old games possible.  We'll see...

fonzannoon's picture

thanks for the perspective guys. awesome insight.

VonManstein's picture

I agree with you completely. It could go either way. In the past it has indeed gone a certain way, but i am also leaning towards tempting fate, and uttering the dreaded line... "This time it’s different"

To wait and see is all one can do.

However, to support the later case.

I think the damage that has been done to the EUR and JPY is also making it increasingly difficult for "they" to jam prices lower. If we compare charts of gold in EUR, JPY and USD we can see  the variation in performance but what is apparent is that they all put in intermediate tops and bottoms on the same day. The fact that EURgold is consolidating (over 2 months) above its break of 1300 to me says the bottom is in and sell off events will be minor. If "they" really want to bring the XAU price down much they will have to bring it down massively in EUR, this equates to a strengthening of the EUR, something that involves weakening the DXY. This is their predicament, one I would suggest has sown the seeds for new highs across the board by Q1 2013

Also, along the same lines, USD and EUR gold were in sync until the great smash. The apparent EUR strength we observed this week for whatever reason, could be the beginning of a paradigm shift, resulting from the fiscal cliff scenario, perhaps we could see the USD trade with risk more so than the EUR (the SPX and DXY have both strengthened this year and so the reverse is also a very real possibility.. in fact I’m betting on it) this would bring XAU up to the comparative EURgold level in the coming months.

They both amount to the same thing at the end of the day.

The only real way that those who chose to drop 75 tonnage of paper onto the market in 10 minutes can really bring the POG down, is to drop all the longs they hold going 100% short. This would surely collapse things massively but would leave them no longer as "commercial hedgers" as they would be completely unhedged themselves and completely vulnerable. They would have to collapse it and flip their books on a dime. Can this be done, or are the positions that they hold so intertwined with their derivative books, prop desks and interest rate swaps that this kind of nimble trade is even possible?

I doubt it but I doubt my doubts.

Anyway, my opinion is that given the tonnage dropped on the COMEX last week and given the lack of effect, we can begin to speculate that “they” are a spent force, and will have to retreat to higher ground to stage the next assault.

I am long and will not sell, that’s all that matters.



Al Huxley's picture

Good point about the price action in non-USD currencies.

seataka's picture

Did not Germany ask for their gold back from London  and was offerred 50 Tons per year?

Snidley Whipsnae's picture

setaka... Last word that I read was that Germany was going to get 50 tons per year for the next 3 years for 'testing' purposes.

I doubt that this was what Germany wanted to happen when they requested their gold be returned. At the rate of 50 tons per year it would take several generations for Germany to get all of it's gold back.

max2205's picture

Japan didn't buy anything. Ben set up a swap to make things look good.

We know Ben

Diogenes's picture

Who needs foreign investors? The government prints up the bonds, sends them to the Fed, the Fed credits their account and the government writes checks on it.


Wonder why the Chinese prefer gold?

Amagnonx's picture

Well - I was going to write the same comment :P 


One thing is also worth noting - they will continue to suspend reality with respect to accounting requirements - marked to fantasy for everyone (so long as you are a favored bank) and infinite credit, a specially tailored balance sheet with nothing very relevant on it.  The Feds real balance sheet is never going to be known.


Bank balance sheets seem to obey the same laws as quantum particles, seemingly in a mixed state of solvency and insolvency - and a genuine measurement would force insolvency.

Future Tense's picture

Funds are being re-directed back into Europe, temporarily, causing the shift out of US paper for foreigners. Ultimately, it will all move at once toward gold in the end.

The big unzip's picture

Japan is preparing like its May of 1945.

scraping_by's picture

The last resort for Chinese Treasuries has always been to pick a fight, freeze all Chinese assets including debt, then declare it confiscated and go home. Worked for the US at the beginning of WWI, snatching up billions in German gold and other property.

However, it's been recently pointed out the Chinese have a monopoly position on the rare earths needed to make the precision magnets that guide the smart bombs and cruise missiles. Even if the PLA is a gang of doinks officered by thumbsuckers, it's going to be a short war if the US military can't use its high tech stuff.

Or, the US can become Argentina.


Winston Churchill's picture

Have you ever played GO.

If you have ,you will notice the similarities in how China has been playing

the Great Game over the last four years.

They aim to win without firing a shot.

Will Pax Americana go quietly into the night ?

We are about to find out within the next couple of years.

We surely live in interesting times.

There is a reason why that's a Chinese curse.

Divine Wind's picture



An excellent game of strategy.

TPTB_r_TBTF's picture

The US has more nukes than China has.

Arthur Borges's picture

China has max 20 DF-5A liquid-fuel ICBMs of 1950s technology that are capable of covering the entire Continental USA; each has a one-megaton warhead; warheads are unmounted and stored in a separate facility under civilian control. There were western claims the DF-5A warheads are mirved but some analysts doubt that. There's also talk of deployment a new one -- though not the DF-31, which Chinese sources say has been abandoned.

FAS estimates the total nuclear arsenal at around 300 warheads; take away the 20 warheads above (and one or two spares) and the rest have a reach out into Russia, India, Japan and SE Asia; the biggest chunk of shorter range nukes are intended to deny attacker access to Taiwan.

(The above is summarized from readings off the website of the Federation of American Scientists, the least hysterical source I've found so far on the Internet.)

WhiteNight123129's picture

There is a fundamental difference between Chinese leaders and US ones. To be a leader in Politburo for the most part you have to be a trained engineer... in the US, the political class is made of Lawyers... I am in South America... good luck with the fight guys. A engineer will typically always wack a lawyer at chess, strategic games, complex problem resolution. An engineer is typically a poor public speaker but they do not give a fuck, it is not a democracy. Now there are exception for sure, guys good at everything, but unless the US brings the NASA crew to replace the white house clowns, it will be tough.


Arthur Borges's picture

1. The Standing Committee works more like the UN Security Council: President Xi can't fire any co-member and decisionmaking is by consensus.

2. The new crew on the Standing Committee is weighted toward the social sciences, not engineering.

3. This tells me that whatever policy changes are made, new policy will be crafted with greater, more detailed attention to the social impact. As I keep repeating, grassroots revolt is what brings down the dynasties here and every Chinese leader knows it.

jonjon831983's picture


Chinese Rare Earth Element dominance may be temporary.

Since the last REE bubble (circa 2010) which was pumped by the fact that China exports something like 90% of REE`s and that they WERE restricting exports in order to "consolidate and clean up mining/refining operations", the point exposed to the general masses was that there are actually plenty of REEs out there.

The only issue of supply is the startup time required to develop a mine and refinery (ok and the sometimes toxic radioactive byproducts from refining certain types of REE "Lynas learns fate for Malaysia rare earth refinery").  In fact, it was during the 1970's when China crashed the external market by driving prices down low in a bid to generate an export market in REEs.  International mines went bust almost overnight because of the Chinese decision, but with the latest REE bubble external miners went back to the table to re-open existing mines.


So any perceived shortages or threat is a temporary man made in order to corner the market.  Worry only if China decides to buy up all the REE mines and refinery operations around the world... but then IF SHTF what you don't hold in hand (ie with sustainable military power), then you don't own it.  Otherwise, economics of pricing will cause supply to increase.


Funny thing is, my dad randomly started talking about REE's and China's dominance out of nowhere a couple months ago.  Maybe it was because of the China/Japan spat.  I had to explain the same thing, sans the nuance that REE is a general term for different elements.


To provide further evidence of the slightly overblown REE crisis, I dug up a conveient REE ETF.  Looking at the maximum range in 2010 when this one appears to have IPO'd (gee how convenient and kindly of them to help the common people participate in the boom) the peak was in April 2011 at around $27.94.  Current price: $11.95;range=5y...


Byte Me's picture

Only problem that I see is:--

"What happens when/if China's economy slows and there's less surplus available to plough back into gold?"

At first flush, it looks like PRC has been supporting the bullion market as a result of its (now obvious) aversion to Treasurys. Clearly they don't bid up too much as they have a medium / long term agenda, but with Europe heading into the crapper and the USSA looking at cliff-hanging, that PRC surplus looks well vulnerable.

What then for my yellow metal value?

kchrisc's picture

Byte Me,

They may or may not have a problem, but they will own the gold and have a huge manufacturing base that can be turned from export to domestic use.

The UFSA (United Fascist States of America) will be left with nothing but war and despair.

As for the gold and China, well, how's it go: "Those with the gold make the rules..."

kevinearick's picture

China always jumps in at exactly the wrong time...

Afrikans vs. niggers

Sharpton is a nigger, uprooted and highly insecure, perfect fodder for the empire, which is why you see him on the empire TV broadcast. Don't show me an Americanized af spouting about democracy in a thousand dollar + suit and expect me not to use the phrase nigger traitor, when I'm talking to my partner at work, whether you are walking by or not, at a university or not.

I say the same thing about George Washington all the time. He was politically expedient just like nearly all of the other a-holes that ended up in the oval office. The critters look at me puzzled when I say it about the latter, but piss their pants when I say it about the former. What does that tell you?

I've watched these w-s operate in person at parties, but I'm just a laborer. Yes Al, the Republicans are idiots, and no one pisses their pants when you say much worse at private parties, but so are you, a kettle calling the pot black. The difference is that you have reason to know better, f-ing limousine liberal.

Middleton: A myth is a statement about society and man's place in it and the surrounding universe. Such a statement is, in general, a symbolic one, so that an important anthropological problem becomes one of understanding the reality that the statement is used to symbolize. (setting up the stack and hash)

Magesa: [T]he Dogen see the present order of the universe as a magnified projection of the original order of creation. As God is and does, so humans must be and do. The point of the myth is once again that it is because of human fault that God is now removed.

God's care and concern for humanity are demonstrated particularly when humanity faces such 'limit' experiences...Even though human beings may be the ultimate causes of these disasters. When God refuses to do these things, it is always temporary and indicates it is time for humanity to examine itself to see what it has done wrong, and then to correct its behavior and repair the damage.

Humanity is morally bound to sustain the work of God by which humanity itself is, in turn, sustained. Every creature has been endowed by God with its own force of life, its power to sustain life. Because of the common divine origin of this power, however, all creatures are connected with each other in the sense that each one influences the other.

Ibid: Nothing moves in this universe of forces without influencing other forces by its movement. The world of forces is held like a spider's web of which no single thread can be caused to vibrate without shaking the whole network. (rooted at resonance)

Young: Adapted to neocolonial realities and interpreted according to traditional sensibilities, they are rich in liberating values.

Mesaga: They have preserved for the people their identity as Africans through such massive crises as slavery and colonialism. They continue to exert a  more important and fundamental influence on African spirituality than many Christian leaders and Westernized academics care or dare to admit.

Moore: the African is used to adjusting, and needs no more than a generation or two to restructure his society according to necessity.


Does that sound like an entitlement mentality to you? Is that the Africa you learned about in the media? It's certainly not what China was expecting, to bail itself and the rest of the empire out, to keep the ponzi going. Africa is another order of magnitude more complex than the middle east to the US voter, who cannot scratch the surface of the latter, but knows an authority that went to Israel and scratched a few lines out of the Bible, out of context.

Political correctness is a fatal disease inherent to central control, which is the point of free speech. The only thing worse than an insecure inbred idiot making a point to tell you a lie you have already heard 10,000 times is explicit democracy. Everything in a constitution beyond free speech is a crutch for corporations, because they lose every time.

helping_friendly_book's picture

New leadership in China means a new ballgame for  BOC-FRBNY relations.