Yesterday we first pointed out the rotation at the top of foreign US debt holders, with China selling $34 billion in USTs (shifting to a longer duration exposure by selling Bills and buying Bonds) to a new total of $755 billion, and giving up the top US debt holder position to Japan, which with $769 billion in UST holdings regained the top spot for the first time since August 2008. Overall, total foreign debt holdings in 2009 increased by $538 billion, with two unexpected buyers emerging in the face of Japan and the UK, which combined accounted for 58% (or $314 billion) of all 2009 purchases. We say surprising, because it has been long publicized that both countries have their own internal funding issues to grapple with: Japan an uncontrollable deflation and a demographic shift, which would make JGB's a better buying proposition than chasing micro yield in the US, while the UK is engaged in its own version of Quantitative Easing. With the BOE taking on excess supply one wonders how the UK can spare the dime to purchase our own debt (of which we have plenty more to issue in the future)?
Below is a chart that summarizes the change in holdings by major holder.
Summarizing the data:
- Japan is the top holder of US debt at $769 billion, a $143 billion increase from a year prior.
- Chinese holdings increase by a mere $28 billion, ending the year at $755 billion, and down from a peak position of $801 billion.
- Foreign holding were split 23% bills and 77% bonds, compared to 21% bills and 79% bonds at the end of 2008.
And while the change in the top two UST holders was not exactly a surprise considering all the recent jawboning out of China, what was notable was the puke in corporate debt in 2009, of which foreign investors sold a total of $41 billion in 2009, compared to buying of $94 billion in 2008. More on this in a later post. With the roll becoming an issue not only in the UST arena, but in corporate as well, should this defensive posture in corporate debt from external investors persist, then this observation could have even more troubling implications as the LBO wave of 2005-2007 comes due for refinancing.