The Selling Ends: Foreign Central Banks Buy The Most Treasuries In Over Two Years

Over half a year after we first reported last August that foreign official institutions - central banks, sovereign wealth funds and reserve managers - are liquidating US Trasuries in record amounts, a process that only accelerated into last month when official entities sold a record $405 billion in US paper in the LTM period, Bloomberg decided to catch up to the topic with "America’s Biggest Creditors Dump Treasuries in Warning to Trump."

Well, not so fast, because as we also warned last month, based on more concurrent data from the Fed, showing Treasuries held in custody, the selloff most likely peaked in November, as December was a month in which foreigners were actively buying, not selling Treasuries.

Moments ago, data released by Treasury International Capital confirmed this, when it showed that in December after 12 consecutive months of selling by foreign official institutions amounting to $405 billion, in December the selling finally reversed, and foreign central banks added $18.6 billion in Treasuries, the single biggest monthly purchase of US paper since June of 2014....

... pushing total LTM sales by $67 billion higher to $338 billion.

The flipside to this buying, however, is that while official accounts were waving it in, foreign private accounts, i.e., corporate institutional and retail investors were selling. In fact, in December they sold $40.4 billion in Treasurys, the single largest monthly amount going back to April.

Furthermore, with all eyes on China, it was Japan where the action was because as reported earlier this week using Japanese government data, in the last month of the year Japan sold $21 billion in TSYs: the biggest net selling since May 2013.

Today's TIC confirmed as much, because while China actually added $9 billion in Treasurys, pushing its total from a 5 year low to $1,058.4 billion, it was Japan - the (recently) largest US creditor - that sold some $18 billion in US paper, bringing its total below $1.1 trillion for the first time in over a year, or $1,090.8 billion to be precise.

Still, despite Japan's selling, it was everyone else who chipped in, and in December, the report of major foreign holders showed a rebound in the total foreign holdings, which had recently dropped to a 5 years low of $5.944 trillion, back over six trillion or $6,003.9 billion to be precise. And, of this number, it was the foreign official holdings, i.e., foreign central banks, that saw the biggest rebound, rising from $3,770.5 billion to $3,814.1 billion.

So is the selling over? Probably not: while custody holdings rebounded in December by almost $60 billion, the selling has since resumed and at last check total Treasury holdings were back down to $2.848 trillion, with the recent jump in 10Y yields hardly serving as a solid basis for foreign official buyers to step in front of what may soon be an inflationary steamroller.