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Why I am Not Worried About China Selling Treasuries and You Shouldn’t be Either
A Real Pig’s Eye
The end is nigh. The irresistible force encountered the immovable object. We learned this week that China reduced its Treasury holdings in
December for the second consecutive month. Is it really true, as one analyst was quoted on the front page of the Financial Times claiming that
China was “saturated” with US paper? Is this yet another nail in the coffin of America’s hegemony? Don’t bet on it.
The exaggeration here is simply breath-taking. The lead of the Financial Times story is very revealing. “Foreign demand for US Treasury bonds
fell by a record amount in December…” In a pig’s eye it did. Foreign investors bought a robust $70 bln of Treasury notes and bonds. That is
roughly a quarter higher than the 6-month average.
The alarmist journalist is right only in a very narrow sense that the net purchases of Treasury notes and bonds were even stronger in November.
At nearly $118 bln worth of Treasuries snapped up by foreigners in November, it is the month that is the outlier, not December.
For the record, foreign investors bought $538.5 bln of US Treasury notes and bonds last year. That is more than a 70% increase from 2008.
Indeed, foreign investors bought more US Treasury notes and bonds last year than they did in 2007 and 2008 combined (~$513 bln). You won’t
see that on the front page of the Financial Times.
What is China Doing?
The data is clear. China sold a little more than $34 bln of Treasuries in December. This brought its holdings down to $755.4 bln, which meant that
it slipped behind Japan as the largest foreign holder of Treasuries for the first time since A