China and Japan's US Treasury Debt Holdings Fall, Russia's Increase

by Amna El Tawil
According to the latest reports for November, China’s holdings of the US Treasuries decreased for the sixth month in a row. More precisely, China’s holdings declined to $1.049 trillion, a drop of about $66 billion, data from the U.S. Treasury Department showed on Wednesday. November’s drop in China’s holdings was the largest since December 2011’s record fall of $102.7 billion.
 
Gennadiy Goldberg, interest rates strategist, at TD Securities in New York said: “This is in line, at the very least, with data showing that capital continued to flow out of China. Perhaps this does suggest that there is further pressure on the Chinese central bank to sell Treasuries to raise cash in order to meet those capital outflows.”
 
Moreover, in October and November 2016, Chinese currency yuan weakened by 4% against the US dollar. The pace of China’s selling of Treasuries creates new records because over the six months through November, the country had shed $194.66 billion of Treasuries and over the previous 12 months, had sold $215.11 billion.
 
It is important to keep in mind that selling began before Trump beat Hillary Clinton in the presidential race. Therefore, it would be inaccurate to say that all this happened because China was scared of Trump. When Japan and China started selling, the current president was still considered as an “underdog” in a presidential race. That said, experts deduce that the acceleration of the Treasury sales in November could be yet another indication that investors feel Trump’s proposed stimulus policies will boost growth, which makes owning bonds less attractive.
 
China and the United States have a complicated relationship. Throughout his presidential campaign, Donald Trump talked about China’s monopoly over the US economy and promised to work towards decreasing American debt.

The reports also show that Japan remained the largest non-U.S. holder of Treasuries for a second straight month in November, holding $1.108 trillion in U.S. government bonds. But that was lower from Japan’s October holdings of $1.131 trillion. For an eighth consecutive month, foreigners unloaded Treasuries, selling $205 million in November. That was the fewest sold by foreigners since July 2014.
As a result of foreign selling of Treasuries, yields have risen. Yields on U.S. benchmark 10-year Treasury notes at the beginning of November were 1.82%, hitting a high of 2.4170% and ending the month at 2.3670%. Late on Wednesday, U.S. 10-year yields were at 2.427%.
Data also showed foreigners bought $30.8 billion in long-term U.S. assets in November after buying $9.3 billion the previous month. Including shorter-dated securities, overseas investors purchased $23.7 billion in November, after buying $20.6 billion in October.
Foreigners also sold $5.789 billion in U.S. stocks in November, after buying $20.535 billion the previous month.
That’s not all, Russia boosted its Treasury position by $12 billion, a move that may raise eyebrows given favorable comments that Trump and Russian leader Vladimir Putin have made about each other.

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