Why China is Forced to Purchase US Treasuries

Quote: odiousgambit

ironically you could hardly blame them [to use a figure of speech] if they dumped them all now since they pay next to nothing - yet better than anyone else oddly. Of course it would actually be something outrageous, short of an act of war I suppose

Quote: Craig Eyermann • Friday May 17, 2019

What Happens If China Triggers Its Nuclear Option for U.S. National Debt?
As the two sides engage in a tit-for-tat tariff exchange, the possibility that China might raise the stakes and stop being the world’s biggest consumer of U.S. debt again reared its imposing head Monday.

China currently owns $1.13 trillion in Treasurys, a fraction of the total $22 trillion in U.S. debt outstanding but 17.7% of the various securities held by foreign governments, according to data from the Treasury and the Securities Industry and Financial Markets Association. Should the Chinese decide to walk away or reduce their role in the market, that, at least in theory, could create a substantial dislocation for a country such as the U.S. that relies so much on sovereign entities to buy its paper....

“To me, that is the biggest worry. This is really the biggest weapon they have,” said Sung Won Sohn, professor of economics at Loyola Marymount University and president of SS Economics. “They need to do more to counter the United States. So if push comes to shove, that’s what they are going to resort to.”

Although China has obviously not triggered the nuclear option since the above article was written, it has certainly reduced it's Treasury Holdings position down from 17.7% of the various securities held by foreign governments.

The reduction is considerable if you look over data from the last 9 years.


2020-07 15.1%----------------------------$1.07 trillion
2020-06 15.3%
2020-05 15.5%
2020-04 15.5%
2020-03 15.6%
2020-02 15.1%
2020-01 15.3%
2019-12 15.6%
2019-11 15.8%
2019-10 15.9%
2019-09 15.9%
2019-08 15.7%
2019-07 16.3%
2019-06 16.8%
2019-05 17.0%
2019-04 17.3%
2019-03 17.3%
2019-02 17.7% ----------------------------$1.13 trillion
2019-01 17.8%
2018-12 17.9%
2018-11 18.1%
2018-10 18.4%
2018-09 18.5%
2018-08 18.6%
2018-07 18.7%
2018-06 19.1%
2018-05 19.0%
2018-04 19.1%
2018-03 19.1%
2018-02 18.9%
2018-01 18.9%
2017-12 19.1%
2017-11 18.7%
2017-10 18.8%
2017-09 18.8%
2017-08 19.2%
2017-07 18.7%
2017-06 18.6%
2017-05 18.0%
2017-04 18.0%
2017-03 17.9%
2017-02 17.6%
2017-01 17.7%
2016-12 17.6%
2016-11 17.6%
2016-10 18.5%
2016-09 18.8%
2016-08 19.1%
2016-07 19.5%
2016-06 19.8%
2016-05 20.0%
2016-04 19.9%
2016-03 19.8%
2016-02 20.1%
2016-01 20.0%
2015-12 20.3%
2015-11 20.6%
2015-10 20.8%
2015-09 20.6%
2015-08 20.8%
2015-07 20.7%
2015-06 20.6%
2015-05 20.7%
2015-04 20.6%
2015-03 20.4%
2015-02 19.9%
2015-01 19.9%
2014-12 20.2%
2014-11 20.4%
2014-10 20.7%
2014-09 20.9%
2014-08 20.9%
2014-07 21.1%
2014-06 21.1%
2014-05 21.3%
2014-04 21.2%
2014-03 21.4%
2014-02 21.6%
2014-01 21.8%
2013-12 21.9%
2013-11 23.0%
2013-10 23.1%
2013-09 22.9%
2013-08 22.7%
2013-07 22.9%
2013-06 22.8%
2013-05 22.9%
2013-04 22.6%
2013-03 22.2%
2013-02 22.0%
2013-01 21.6%
2012-12 21.9%
2012-11 21.4%
2012-10 21.2%
2012-09 21.1%
2012-08 21.2%
2012-07 21.6%
2012-06 21.6%
2012-05 22.1%
2012-04 22.3%
2012-03 22.2%
2012-02 22.6%
2012-01 23.1%
2011-12 23.0%
2011-09 25.9%

"Foreigners Dump US Treasurys In August, China's Holdings Drop To Almost 4 Year Low"

"Before we get into the weeds, a big picture snapshot showed that in August, the most notable flows were as follows:"

Foreign selling of Long-Term treasuries: $33.1BN
Foreign buying of Agency debt: $37.7BN

"Yet while once upon a time analysts would look at such selling by foreigners with caution, now that the Fed is buying every newly issued US government bond, the reality is that the US no longer needs foreign creditors: after all it has an activist Fed which monetized the deficit, and buys ever dollar in debt issued by the Treasury."

Quote: Tanko

"Yet while once upon a time analysts would look at such selling by foreigners with caution, now that the Fed is buying every newly issued US government bond, the reality is that the US no longer needs foreign creditors: after all it has an activist Fed which monetized the deficit, and buys ever dollar in debt issued by the Treasury."

Japan surpassed mainland China as the biggest offshore holders of US paper in mid-2019, now exceeds China by 19.70%. However, China+Hong Kong+Tawain exceeds Japan by 19.75%.

An investment analyst that I know looks at this same issue and put $40,000 of his own money into Bitcoin.

Aug 2019-Aug 2020 change in foreign holdings of US Treasuries (billions $)
-$53.80 Saudi Arabia
-$48.40 Brazil
-$35.50 China, Mainland
-$26.80 Canada
-$19.90 Cayman Islands
-$15.30 All Other
-$14.70 United Kingdom
-$12.70 United Arab Emirates
-$10.10 Sweden
-$9.60 Norway
-$8.40 Thailand
-$7.50 Germany
-$3.50 Bermuda
-$3.50 Mexico
-$3.20 Italy
-$2.30 Spain
-$1.70 Colombia
-$1.30 Hong Kong
-$0.40 France
-$0.20 Australia
$0.00 Belgium
$2.30 Kuwait
$3.40 Vietnam
$4.60 Netherlands
$4.80 Israel
$4.90 Korea
$5.00 Poland
$13.70 Philippines
$14.80 Singapore
$20.10 Switzerland
$24.60 Luxembourg
$26.10 Taiwan
$34.30 India
$63.00 Ireland
$103.80 Japan
$46.60 Grand Total

Quote: Pacomartin

An investment analyst that I know looks at this same issue and put $40,000 of his own money into Bitcoin.

Too risky. What is he going to do when the government bans cryptos? An Executive Order is all it would take.

The Fed does not like competition.

Quote: Tanko

Too risky.

I think the take away is that he considers the fading away of foreign governments as purchasers of US debt to be a risky trend. The response must also take a certain amount of risk.

There may be a lot of true digital currencies developed in the next few years.
Facebook's Libra for one. Sweden's e-krona. Chinese CBDC Yuan. Digital Euro.


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