As China Liquidates US Treasuries, It is "Gobbling" Up Japanese Government Bonds

Tyler Durden's picture

As we reported one week ago, the latest Treasury International Capital report revealed something disturbing: not only had foreign central banks sold a record amount of US Treasurys in the past 12 months, some $346 billion worth...

 

... but America's largest foreign creditor, China, sold a record $34 billion in US paper in the latest month, and bringing its total holdings to the lowest since 2012.

 

This led to an obvious question: is China dumping all of its foreign reserve holdings proportionately, or is Beijing strategically offloading its US paper, for financial, political reasons or otherwise, as it buys other foreign government bonds. The answer, at least according to the Nikkei, is the latter.

As the Japanese owner of the Financial Times reports, China is on a shopping spree, and has been "gobbling" up Japanese government bonds, adding that Beijing bought close to a net 9 trillion yen ($86.6 billion) worth of JGBs in the January-August period, more than tripling the amount from the same period last year. Incidentally that's almost equivalent to the number of US Treasurys sold by China.

A simple explanation for the shift is that the People's Bank of China has been reducing its holdings of U.S. Treasurys in anticipation of higher U.S. interest rates and shifting some of its money to JGBs, where higher rates - courtesy of 250% in debt/GDP - are largely guaranteed to never arrive. 

But more importantly, and this could explain the perplexing recent strength in the Yuan, this trend may be a reason behind the yen's appreciation in foreign exchange markets in recent months.

According to Japan's Ministry of Finance, China invested 8.9 trillion yen in Japanese securities in net terms between January and August. Buying started to exceed selling more often on a monthly basis in the second half of 2015. In April, net buying surpassed 3 trillion yen. Curiously, China is not buying the Japanese bonds for the "yield", but rather for liquidity: most of the securities purchased by the PBOC are bonds with maturities of one year or less.

Judging by the latest TIC data, China's selling of US paper is accelerating, which also suggests that just as China has been a factor pushing the Yuan higher, the dollar has been pressured lower by the ongoing Chinese liquidation. One wonders how much higher the USD will jump if and when China decides to halt its selling of US paper, and how much lower the Yuan will then tumble in response, leading to even faster capital outflows from China.

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Nobodys Home's picture

Why bother conquering an enemy when you can just buy them?

Nobodys Home's picture

Good question to ask our government.....although now we can barely even buy fertilizer...But back in the day we could have saved taxpayer money by just buying countries instead of not declaring war on them.

auricle's picture

If that doesn't say lower your rates then nothing will. Janet? 

sinbad2's picture

The supreme art of war is to subdue the enemy without fighting(Sun Tzu)

The central planners's picture

It actually says to subdue the enemy by dropping piles of swiss francs for ramsom payments

Big Whoop's picture

>Why bother conquering an enemy when you can just buy them?

That's what was said when Japan bought Hawaii.

Bay of Pigs's picture

So, propping up the Japs and the Yen?

Please tell, how the fuck will that ever work out?

ClassicCommodity's picture

You've been around how long now? What a dimwitted fucking idiot if you can't figure it out. In fact the majority of ZH is full of garbage like you these days.

It's called plugging the hole so that shit doesn't crash, get it?? Hello the yuan inclusion into the SDR happened this month.

This comment section makes me writhe in disgust. Filth like you need to be removed, we need the old ZH back. The one that wasn't bought out to sell lies to morons like you.

Bay of Pigs's picture

I was just in Asia fucktard and nobody wants to hold Japanese bonds. Yes I get it, which is why I asked, how will this ever work out longer term? Guess what, it wont Einstein. Maybe plugging the hole between your ears short term.

Fuck you asshole.

JamesBond's picture

China was looking around for the safest and best investment governmental bond wise;  guess what...  Japan is it.  Bonds are inverse to interest rates and those are not going to spike anytime soon in Japan.  Your enemies low interest bond market is the friend of your hot money looking to be parked for awhile. China can continue to gripe about Japanese policy in the South China Sea while milking their bond markets until such time a better play is available.  Not all of China's money should be in gold.  You need some liquidity.  And Japan's bond market is the place to be.  There is no Killary on the horizon ready to confiscate it in Japan.  By the way, what a bitch she is.  God help us.

 

jb

sinbad2's picture

China is Japans biggest trading partner, and they trade in their own currencies, not US dollars.

So owning a lot of Yen makes a lot of sense, is Japan buying Yuan?

GardenWeasel's picture

a stronger yen makes Chinese products relatively cheaper, thus giving them a trade advantage.  They are killing them with kindness.

EhKnowKneeMass's picture

OT. Did anybody notice an article disappear from the home page? It was about Soros telling that Trump may win the popular vote, but Hillary becoming the president is a done deal.

Krungle's picture

Snopes claims that video is a fake. Snopes is a fake, but maybe they were right for once and the Tylers didn't want to get a call from Eichenwald calling them agents of Russia for running with a disinfo story....

webmatex's picture

The Soros article where he says he fixed Clinton's victory via the electoral college no longer exists here.

Spooky!

http://newzsentinel.com/soros-admits-landslide-popular-vote-victory-for-...

The following shocking clip of George Soros mumbling through an interview with a Bloomberg reporter shows him admitting that:

“it’s all going to lead to a landslide victory for Donald Trump… in the popular vote…. not in the electoral vote because they’re paid political elements/announcers will have a big role and so the electoral vote will be closer…”

Spookier.


Due North's picture

This information, if true, would go a long way to underscore the Trump as Strawman theory and indicate that the entire election is a massive orchestration of a stage performance courtesy of the Deep State. Russian Intel would most certainly be aware of this as well and would explain the huge dispatch of the Russian military. 

Thank you for the information link.

GoldenDonuts's picture

Frying pan meet fire.

Bay of Pigs's picture

Exactly. Tell that to dumbfuck above please.

CHX's picture

Not at all... The dumped green paper for some tropical islands... A strategic move with double purpose.

Latitude25's picture

This brings up the question of faith in the Japanese and how much gold they REALLY have.

CHX's picture

My take is this. There were some closed door negotiations and that's the price China is willing to pay for peace (read "now their islands") in the South China Sea where the dispute and tensions (at least in the media) have tapered off completely.

Tom Green Swedish's picture

Despite what we know is going on behind closed doors the Chinese do not like the Japanese. This is obviously a political move. They see a weak Japan and are attempting to exploit that weakness to their advantage.  This is how the communist faction works there.  They sucked everything out of host A and now are moving onto Host B.  Look at how they destroyed the US manufacturing base with the exception of heavy industry which they of course stole all the blueprints or bought their way to it.  Hundreds of years of innovation swiped by these little communist pricks.  Yes folks communism is bad.  I'll choose a 1 percent and capitalism over communism any day.

Davidduke2000's picture

Japan will be the first country to default  causing mass suicides as all Japan's money in invested in their worthless yen including pension funds something like Enron.

For some reason the Chinese wealthy are doing what the Japanese before them did buying us assets than can drop overnight to 25% of their value and now they are buying Japanese bonds instead of grabbing the gold and silver and most of the precious market since it is easy to control starting by buying the comex parent company and shutting it down for good, this fraudulent papers market need to be obliterated for good as a printer can make a fortune while a saver is defrauded of his real money.

But it looks like china is taking over  all the fraudulent markets from the us and the UK and doubling down on the fraud. 

reddgreen's picture

who cares?  It makes no difference to us.  The US Federal Reserve has been the single largest purchaser of US government debt for years now.  Now is the time to have a real tea party, have the angry hordes travel to sea ports, and dump all th Chinese made shit into the ocean.  Fuck them.

truthalwayswinsout's picture

China is in a world of shit. The vast majority of jobs that were created there are disappearing because of automation and most are returning to their countries of origin. But the problem is you lost 1000 jobs and get back 60 in the US. But at least you get some jobs and infrastructure support follow on so it is not the greatest but it is good. You still purchase electricity, and you need raw materials and shipping etc. so that is great. And the GDP looks a lot better without the trade deficit. You might even get a boost from some exports.

The 1% in China know this and they are bailing as fast as they can with hard cash in US dollars which is why China is selling its Treasuries; BECAUSE IT HAS TO.

At the same time these deflationary forces are gathering steam, their military thinks it can flex its new found muscle and start bullying everyone around them.

I remember when everyone said we have to learn to speak Japanese as they were going to own the world. Now look at Japan; it is has been in a depression for over 30 years. The result in China will be worse.

Let it Go's picture

For years the Japanese government has made every effort to halt the deflation Japan has suffered from since the late 1990s following a property bubble that burst earlier in the decade. Up until now all the massive pump priming by the government and monetary stimulus by the central bank have failed to meet the goals of reflating the economy or generating growth.

Recently a lot of  bad news  flowing out of China has threatened to slow and further undermine Japan's hopes for growth. The Japanese economy is very vulnerable to a negative feedback loop from China that could have strong ramifications on its economy.

While the mutual benefits derived from economic interdependence would seem to indicate all is well but this is far from the case. Currently, Asia is the manufacturing hub of the world and it is clear as China devalues its currency all the other countries in the region will follow suit in order not to jeopardize their competitiveness. The article below indicates this may influence how Japan reacts to the recent surge in the yen.

http://brucewilds.blogspot.com/2016/01/japans-strong-economic-link-to-china.html

jonjon831983's picture

China bailing out Japan. Helping them keep rates low. Owning a larger share of Japan and eventually a piece of leverage.

 

Also indirectly buying USTreasuries since Japan is a large holder of us treasuries.

stecha's picture

You know the funny part is i keep repeating the same sstory. Its like a strip mall, china on one end and russia on the other. they have both worked hard on the diversion stage to keep U.S. busy. While the U.S. was busy being returded they flew in knocked out the petro dollar and are killing energy with oil gluttony. its not opec. Now that the U.S. is outta of the way japan england and au strailia are mext. You fucking returds should have payed closer attention to what was really going on and not the diversionary tactics you have taught the world for so many years.

Motasaurus's picture

England, and so Australia, rule the financial world. Not Wallstreet. Not Japan. All those banks that are behind the banks are from London. 
What do you think happened when China "opened up to the world". Do you really believe someone like Nixon pulled that off? He coudn't even pull off what is now the NSA's daily bread and butter.

No. Money rules this world, and China too. In 1998 the Chinese didn't get British Hong Kong back. The British got mainland China back. 

stecha's picture

Text to Speech sucks