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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
yogibear's picture

It would take a complete loss in the confidence of the US dollar to stop Bernanke and the Fed.  When people say no to the the US dollar it stops the Ponzi.  Countries need to also pull back their gold holdngs from the Federal Reserve banks.

dinastar2's picture

THE US $ debasement has been going on for the last 4 years, by the FED  but without long-standing solid results.The Stock exchange bubble does not reflect the state of the economy, 50% o US stocks are owned by the 1% population of the very rich.On the external , the dire need of the USA to be financed by China , is SLOWLY receding ( as you mention in your article ).The chinese are now aiming at reinforcing their currency with a solid asset like gold and are also aiming at increasing their internal consumption.But the TLT index is still up in the sky thanks to the Japanese who are just nowfollowing the debasement of their currency and accumulating more US T bonds. So alltogether the USA are still afloat and the TLT does not yet crash.It will take another 3-4 years when the japanese will have debased theyr yen ( from 78 and now only 81 down to 100 / US $ ) then ther economy will start again to expand ( mainly towards China ) to get out of the US T bonds, then who will come next ? I don't know , maybe no one so the USA will be left alone buying their own debt exactly like Japan did, BUT the big difference is that the US $ will plummet and Gold will zoom up . Europe , I guess will stick to its austerity , and that clearly indicates a higher Euro, starting as soon as the US fiscal cliff is solved ( meaning more QE in the USA )

Atomizer's picture



Ring, ring ring..

Hello Tim Geithner speaking..

Hello Timmy boy, do you remember that trip you made over Yuan currency manipulation?


Repeat your success again. Suck & polish to their liking. Can we count on you Tim?


kchrisc's picture

This is the funniest article and set of charts, in an ironic and tragic way, that I have ever seen.

The US government is literally selling itself and the American people to China and other foreigners. No xenophobia here, just stating the obvious fact.

The Chinese must just love it that Gold is priced in "manufactured" dollars so that they don't even have to mess with exchange rates. They can recycle the dollars into gold without any pressure on their trade exchange rate. Brilliant position if you can get it.

Now, while China is recycling their manufactured dollars into gold, the Japanese are further weakening themselves by propping up the US government further.

So the Chinese now have the gold and their historical neighbor and enemy throwing themselves over a cliff and into their waiting arms.

You can't write stranger fiction.

djrichard's picture

Anybody have a graph on the balance of trade vs foreign holdings of US Treasuries?   We shouldn't have to go too far back to see the pattern.

TwoHoot's picture

The balance of trade and purchas/sale of dollars (treasury notes) is equal and opposite - by definition.

bigwavedave's picture

QE is all about domestic jobs. LOL

bunnyswanson's picture

Women everywhere in the US are struggling with what-to-do - We see the lingerie shops right beside the "Massage Parlors" and strip joints.  Daughters, wives, sisters and moms may resort to attempting to do what your avartar is doing if this keeps up.  I see new girls walking up and down the street - looking embarrassed and out of place.  It's a serious situation.

ootofthehoos's picture

So when China's current account surplus goes to zero do they stop buying gold?

papaclop's picture

You rock, Tyler;

You are one of the few people in the media who really gets what's going on.   The Chinese, already the world's largest gold producer, let no gold leave their country.  In addition, I've heard reports of over 750 tons imported by China by the time this year ends.    They would dump every dollar they could if it didn't crash the markets to do so.  So, they do the next best thing, which is to invest in real money instead of intrinsically worthless paper or worse yet, just cyber digits.   If it wasn't for JP Morgan pounding the gold and silver markets both metals would be much higher.  This only serves to make it cheaper for the Chinese, who are loving JP Morgan right now.  Plus, Uncle Ben gave old JP 500 billion or so of our money after they screwed up enough to go broke.  I thought the definition of Facism was the merger of government and big business.  Especially banking.