The Wilder View

Foreign Holdings of U.S. Treasuries: Was It Really That Bad? No.

I can’t believe that the Financial Times can get away with this. From the FT, titled Foreign demand falls for Treasuries:

Foreign demand for US Treasury securities fell by a record amount in December as China purged some of its holdings of government debt, the US Treasury department said on Tuesday.

China sold $34.2bn in US Treasury securities during the month, the US Treasury said on Tuesday, leaving Japan as the biggest holder of US government debt with $768.8bn. China overtook Japan as the largest holder in September 2008.

I don’t know what foreign demand is (these are net flows, so it could likewise be a product of domestic supply and/or demand), but foreign holdings of US Treasuries grew! In December, foreign holdings for US Treasury securities – official and private holdings of US Treasury bonds/notes + US Treasury bills – increased by $17 bn over the month (you can see the major holders by country here, or the total on the press release, lines 5+10+23).

And lookie here, China dropped its overall holdings , yes, but the article fails to mention the shift in holdings by other key countries that offset completely China’s sell-off. In December, the UK and Japan jointly increased their holdings by more than China dropped its holdings, + $US 36.4 bn vs. -$US 34.2 bn.

treasury_holdings.pngAnd finally, China’s current portfolio is really not that difference from recent history. China’s December share of US Treasury holdings, 20.9% (as a % of total foreign holdings), is barely off its 2007-2009 average, 21.4%. But Japan’s holdings are way off, and could revert towards the average, 23.7%.

The FT’s coverage of the TIC report does not do justice to the undertones of this massive release (especially the China piece, in my view). More TIC analysis to come tomorrow…

Originally published at News N Economics and reproduced here with the author’s permission.

2 Responses to “Foreign Holdings of U.S. Treasuries: Was It Really That Bad? No.”

RichardinDenverFebruary 20th, 2010 at 5:54 pm

China is buying less of our U.S. debt. Japan is the next big buyer. The problem, as I see it, is Japan and it’s economy and aging population. Japan has lost two recent Finance Ministers (Possible suicide and Exertion at work) I would speculate that Japan’s financial affairs are not as rosy as advertised. Japan’s largest pension fund has informed the Ministry of Finance that it will very soon no longer be a buyer of local and foreign debt, but will be a net seller. For what it’s worth…late July 2010 we in the U.S. will be “very aware” of the foreign buyers of our debt. Will we have to raise rates to attract? Odds are.

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