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.