Wednesday, June 17, 2009

China Keeps Their Word: Sells Off US Treasuries

As advertised, China has decreased their holdings in US Treasury securities according to US government data. This decline actually started in April and ended a long trend by China of increasing US Treasury holdings. For more on this see the post below by Tim Iacono from The Mess That Greenspan Made.

Brad Setser over at the Council on Foreign Relations offers the following illustrative graphic along with three quick points about the April decline in treasury holdings by the Chinese:

While the net decline of some $4 billion is not all that significant in the scheme of things, there has been a dramatic change to the "second derivative" of their U.S. debt accumulation in recent months (a "rate-of-change" yardstick that has been increasingly popular lately), a development that is well worth noting.

This report in CHINADaily adds a few insights:

For the first time in 11 months China's holdings of US Treasury bonds fell - to $763.5 billion in April, US government data showed.

The figure, down from March's $767.9 billion, was the lowest since June 2008.

They do not include US Treasury bond holding in Hong Kong Special Administrative Region, which climbed to $80.9 billion in April from $78.9 billion the previous month.

The decline in the China holding "seems to stem from net selling of Treasury bills," said Chirag Mirani of Barclays Capital Research.

Now, those are not words that any U.S. policymaker wants to see appearing in the same sentence - "net selling of Treasury bill" and "China".

It's all about funding our huge deficits to perpetuate life as we've all come to know it...
As the largest holder of US Treasury bills, which are crucial to funding Washington's multi-trillion-dollar recovery plans, China had expressed concerns recently over what it called the safety of its dollar-linked assets.

US Treasury Secretary Timothy Geithner traveled to Beijing about two weeks ago to reassure Chinese leaders, saying their money is "very safe" despite the US budget deficit, which he pledged to cut.
There's been lots of intrigue in FOREX markets lately, with the BRIC countries (Brazil, Russia, India, and China) meeting today without the U.S. even in an observer role and recent comments from China citing concern about the greenback with a Japanese finance minister voicing strong support for the dollar.

Most puzzling are comments from Russia where they first sided with the Chinese, then showed support for the U.S. currency at last weekend's G8 meeting. Today, according to this AP report, Russian President Dmitry Medvedev said the world needs new reserve currencies.

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