China remained the largest holder of U.S. Treasury securities, having surpassed Japan late last year. China increased its holdings to $801.5 billion in May. Japan, the second-largest holder of U.S. Treasurys, decreased its holdings to $677.2 billion.
Rachel Ziemba (via Brad Setser's Follow the Money) with the broader trend:
While the decrease in the US current account deficit means that the U.S. may be less reliant on foreign finance in 2009, the U.S. has become even more reliant on China as a share of its foreign finance. China has been the largest reported holder of U.S. treasuries for some months now. But as of May China now accounts for 20% of total outstanding foreign holdings and almost equals the combined holdings of Russia and Japan.Source: TIC
Since last fall, China dramatically scaled up its purchases of the shortest term, most liquid U.S. assets. It has purchased $196 billion in treasuries of less than 1 year maturity from July 2008 to May 2009. In part this might reflect a shift last fall within China’s US dollar portfolio. It also vastly decreased its holdings of US agency bonds, while slightly adding long-term treasuries.
"Japan, the second-largest holder of U.S. Treasurys, decreased its holdings to $677.2 billion."
ReplyDeleteThe graph then shows Japan decreased its holdings. Can you please explain this disconnect?
I am assuming that China increased its holdings in May while Japan didn't but are still up YTD.
ZachA - your assumption is correct.
ReplyDeletethe article references month over month.
the chart (i assume you meant shows increased their holdings) is YTD 2009.
Thanks. That is what I figured, but I don't have the WSJ subscription.
ReplyDeleteWSJ secret. Google the story headline and click the result = Full Access w/o subscription
ReplyDeleteJake, going over to "Follow the Money", I saw a more recent post on China actually shunning longer-term Treasuries. I have been a steady believer that China has been hedging against it's exposure to the dollar for most of 2009 by buying up commodity assets, a sort of Power-Play if you will. The fact that they are now moving to the short end of the curve I believe further strengthens my argument.
ReplyDeleteThis puts the US and China on a collision course towards the one policy that the US hasn't touch over the course of this crisis...the dollar.
If the US changes it's policy and proceeds to begin preparations for a dollar devaluation (due to the fact that will realize that this debt load could possibly be unsustainable), this could set up a large face off between them.
Your thoughts?