China Dumps Treasuries: Foreign Central Banks Liquidate A Record $403 Billion In US Paper
by Tyler Durden
One month ago, when we last looked at the Fed’s update of Treasuries held in custody, we noted something troubling: the number had continued to drop sharply, declining by another $14 billion in one week, and pushing the total amount of custodial paper to $2.788 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week’s update, there is finally some good news: foreign central banks finally bought some US paper held in the Fed’s custody account, which following months of liquidation, rose over the past two weeks by $23 billion, the biggest two-week advance since November of 2016, pushing the total amount of custodial paper to $2.816 trillion, the highest since early October.
That was the good news, and we use the term loosely in as much as the custody account can be used as a proxy of foreign buying, which according to most rates watchers, it can.
The bad news came out with the release of latest monthly Treasury International Capital datafor the month of October, which showed that the troubling trend presented one month ago, has accelerated to an unprecedented degree.
Recall that in mid-November, we reported that in the latest 12 months we observed a record $375 billion in Treasury selling by foreign central banks in the period August 2015-September 2016, something unprecedented in size.
Fast forward to today when in the latest monthly update for the month of October, we find that what until a month ago was “merely” a record $375 billion in offshore central bank sales in the LTM period ending September 30 has, one month later, risen to a new all time high $403 billion in Treasuries sold in the past 12 months.
As the chart below shows, there has never been such an aggressive selling of US Treasuries over a 12 month period in history.
The biggest seller, and keep in mind that TIC data is on a market-price adjusted basis, was once again was China, which in October “sold” a record $41 billion in US paper (the actual underlying number while different, as this particular series is adjusted for Mark to Market variations, will be similar), and a massive $125 billion in the last 4 months, bringing its total Treasury holdings to just $1.116 trillion, the lowest amount of US paper held by Beijing since 2010. In the process, China has now been overtaken by Japan for the top US creditor position in terms of total holdings with $1.132 trillion, for just the second time.
It wasn’t just China: Belgium, which has long been rumored to be the venue where China’s keeps its “secret” offshore Treasury…
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About the writer Tyler Durden