It's Not China That's Liquidating US Treasuries

Recent fears, warranted or not about the potential for retaliatory liquidation by China of its US Treasury holdings appear to have been once again vastly exaggerated because according to the latest TIC data released, America's trade-war nemesis added $11 billion in TSYs in March, bringing its total to a 5 month high, following the addition of $8.5 billion in March, and nearly $100 billion higher over the past year.

But while China is still buying - for now, given the lagged data - one other notable nation is selling... significantly.

The second largest foreign US creditor, Japan, has been liquidating aggressively in recent months and in March, Japan sold $16 billion in TSYs (the most of any nation in March), bringing its total to just $1,043.5BN, the lowest total in 7 years, since Oct 2011.

And while last month we already knew that Japan was dumping US paper, a new seller emerged this month: hedge funds, i.e. the so-called "Cayman Island" entity, which in March sold just shy of $10 billion in Treasurys.

Meanwhile, and perhaps most unexpected, at a time when US-Russia relations are the worst they have been in decades, Russia actually added $2.3BN in US paper.

All this Treasury buying (and selling) was during the chaotic swings of the March among concerns that China would stop buying or even buy US paper: recall TIC data is 2 months delayed. But April will likely be the big tell as that was during the peak of the escalating trade war tensions, when Trump and Xi were going at it head to head.

Furthermore, as we showed over the weekend, the far more recent Fed Custody holdings data released by the Fed last week showed that the selling by foreign central banks started in earnest in March and continued well into May, so expect next month's data to be especially turbulent.

Meanwhile, the good news for all these buyers of US debt is that thanks to Trump's budget, there's plenty more where that came from.

Looking at the broader universe of all US International capital transactions, in March, foreign public and private entities sold a total of $4.9BN in Treasurys while buying $25.2N in Agencies; they also added a modest $22.4 BN in corporate bonds.

But the biggest surprise - or perhaps not considering what happened to stocks in March - is that after buying a near-record $62.5BN in January and another $57.9BN in US equities in February, in March, foreigners hit the brakes on further US stock purchases, and actually sold a whopping $24.2BN in stocks, the biggest monthly sale going back to September 2015.


Consuelo Cognitive Dissonance Tue, 05/15/2018 - 17:31 Permalink

+1 Cog

And therein lies the interesting thing about Lies - especially from .gov agencies: They don't remain compartmentalized as so many seem to believe.   They spread, as would be the natural and logical result, until the entire apparatus is infected.    Thus it seems to be why large segments of the electorate are unable to wrap their heads around the fact that the entire edifice is corrupt, save for their little 'patriotic' divisions within that somehow remain immune...

In reply to by Cognitive Dissonance

Chief Joesph Tue, 05/15/2018 - 17:14 Permalink

Its good Japan is dumping their U.S. treasuries.  You don't really want your entire country's economy tied to a debtor nation, who is issuing you IOUs (treasury notes), or get pulled down along with a sinking ship, when their dollar depreciates even more.  It appears the Japanese know what the true inflation rate is of the U.S. dollar to be dumping as quickly and quietly as they can.

Yen Cross Tue, 05/15/2018 - 17:20 Permalink

 Hypothetically speaking, it might be that the BoJ wants to be in cash [$usd] as they liquidate, because there's going to be lots of $usd running for yen and CHF, when U.S. equity market trades start unwinding.

 Look at HYG, IG, JNK, all trading well below their 200 day averages.