China Still NOT Selling Treasuries

Back in February of last year I detailed that China was NOT selling Treasuries when the "experts" in the media said they were. TIC December 2009 data initially stated Chinese holdings totalled a bit more than $700 billion, down from summer '09 levels. I made the case that these purchases were actually being made through the United Kingdom (more here). They were. The result is that China's December 2009 holdings were revised upward by $200 billion.

"Experts" in the media would have learned their lesson by now right?

To the Financial Times:

China and Russia were the major sellers of US Treasuries in November as bond yields surged sharply higher that month, according to the latest government data.

The US Treasury reported on Tuesday that private investors sought more dollar-denominated stocks and bonds in November than October, offsetting record sales by foreign governments.

The FT was joined by the WSJ, CNN, and Marketwatch amongst others getting it wrong. Bloomberg got it right here, but wrong here.

Facts:

1) Journalist do not read EconomPic
2) China is NOT selling Treasuries



Source: Treasury

Record Treasury Demand

Been meaning to get to this...

The worry has been that record issuance would not be met with record demand. Lets put away that concern for the time being. AHN with the detailed:

More long-term U.S. financial assets were in demand by foreigners in June, indicating continued interest in the country's bonds, an official report said Monday.

The Treasury Department report released in Washington showed that net foreign purchases of long-term securities were $90.7 billion, compared to net sales of $19.4 billion in May.

The Treasury International Capital data noted that total foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $71.3 billion.

Total purchases of U.S. government notes and bonds amounted to $100.5 billion, the highest on records since the data collection started in 1977, compared to total selling of $22.6 billion the prior month.

And as the chart below shows, there was very strong demand for Treasuries from foreign buyers in June. There is some short-term noise (i.e. China cut their holdings of Treasuries in June), but much of this can apparently be explained by the unbelievably strong demand coming from the U.K. Of the $48.6 billion in Treasury purchases by European nations, $45.7 billion of that was made by the U.K. (yes, more than 94%!).



But why? According to Standard Charter (hat tip FT Alphaville):

The official TICS data underestimates China’s holdings, partly because China purchases debt through intermediaries - most notably through brokers in London. These do not show up in the TICS data under China’s name, but are instead classified under the UK. This ‘error’ in the monthly survey is made clear in the annual survey, which usually ends up reallocating most of the UK purchases during the previous year to China.

So while China's purchases of Treasuries has been relatively flat since the Spring, the U.K. spike may likely be those purchases.



And the long run trend shows that demand (in overall dollar terms) continues to come from China, regardless of how the purchases are being accounted for.

Top Ten Holders of Treasuries

Source: Treasury: Long Term Securities / Treasuries

China Still Treasures Treasuries

WSJ reports on the month over month change:

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.

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.

Source: TIC