Foreign holdings of U.S. Treasuries: was it really that bad? No.
by Rebecca Wilder
(Rdan…published two day ago at Newsneconomics)
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.
And 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…
crossposted with NewsnecomicsRebecca Wilder
I know it is slightly off topic but I wanted to share this. I commented about a year ago that the Fed’s hand were still on the wheel, but the rudder fell off the ship. IE interest rates are no longer setting the pace for growth or inflation it seems.
http://www.nytimes.com/2010/02/20/business/economy/20econ.html?hp=&adxnnl=1&adxnnlx=1266598964-h8wiqA4S1xUnM9lbZ3FueQ
Benny,
No critique for you, but the NYT piece on inflation data is dreadful. One paragraph says most economists think the threat of deflation is passed, followed by a quote saying just the opposite. All that following a statement that core CPI is dead flat on a 3-month basis, the closes we’ve come to deflation in a year, and matching the performance of core CPI back during the Fed’s deflationary scare in the prior decade. It is very hard to learn anything of substance from this sort of first-response, get-it-done sort of pseudo-economic journamalism. Blech.
I wish Brad Setser was still around to explain that his research has shown that the vast majority of UK Treasuries purchases are actually China. Because of the time differences when China makes its purchases first thing in the morning the US markets are closed and thus they buy through the UK which is at the end of their day. In a few months these numbers will be adjusted and we will find that 80% of those UK purchases actually went to china and the entire article is bogus.
Hey, I found Brad in one minute!
http://blogs.cfr.org/setser/2009/01/03/secrets-of-safe-part-1-look-to-the-uk-to-find-some-of-chinas-treasuries-and-agencies/
My conclusion: China had around $830 billion of Treasuries at the end of October and around $595 billion of Agencies. That works out to around $1425 billion of Treasuries and Agencies. That is a lot – but remember that China had around $2 trillion in reserves at the end of October. And if you add in the non-reserve foreign assets of the PBoC, the CIC and the funds that SAFE/ the CIC transferred to the state banks as part of their recapitalization, China’s true foreign portfolio is probably around $2.4 trillion. $1.425 trillion Treasury and Agencies works out to about 60% of China’s total foreign portfolio. It is around 10% of the United States 2008 GDP – and around 35% of China’s likely 2008 GDP. Real money (Setser says)
The FT article is certainly bogus, as Treasury holdings surely rose. As for China’s part in this, Setser’s research suggests that the UK surge will simply be revised down and into the China flows later on – we’ll see in June. But what about Japan? It seems that their holdings took a tumble, and are ready to improve…
All this suggests to me is that the TIC data is essentially meaningless.
Rebecca