{"id":69308,"date":"2023-10-06T02:00:10","date_gmt":"2023-10-06T06:00:10","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/reports-that-china-has-been-dumping-treasury-bonds-have-been-greatly-exaggerated\/"},"modified":"2023-10-06T02:00:12","modified_gmt":"2023-10-06T06:00:12","slug":"reports-that-china-has-been-dumping-treasury-bonds-have-been-greatly-exaggerated","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=69308","title":{"rendered":"Reports that China has been dumping Treasury bonds have been greatly exaggerated"},"content":{"rendered":"
\n

Data purporting to show that China has been dumping its holdings of Treasury bonds have caught the attention of market bears and the financial press. <\/p>\n

But one economist believes these claims have been greatly exaggerated. And he\u2019s got the numbers to back this up. <\/p>\n

\n

In a blog post published this week that caught the attention of some on Wall Street, Brad Setser, an economist and senior fellow at the Council for Foreign Relations, showed that a popular U.S. government data series on holdings of U.S. assets by foreign buyers doesn\u2019t tell the whole story. <\/p>\n

Setser found that the only notable shift in the composition of China\u2019s foreign securities haul over the past eight years \u2014 at least as far as the U.S. is concerned \u2014 has been that Beijing\u2019s reserve managers have favored agency debt like mortgage bonds over Treasurys. <\/p>\n

Although China has slightly pared back its Treasury holdings over the past two years, its total exposure to U.S. assets appears to have changed little going back to 2015, contrary to claims that China has been actively \u201cde-dollarizing\u201d as geopolitical tensions with the U.S. have flared. <\/p>\n

\u201cChina has not been dumping its Treasury holdings, but people highlighting the TIC data to argue that China is dumping don\u2019t understand the nuances of that data,\u201d Setser said Thursday during a phone interview with MarketWatch.<\/p>\n

\u201cThe small reduction in their holdings is most likely due to a decision not to reinvest the proceeds back into the market.\u201d <\/p>\n

Assuming Setser\u2019s calculations are correct, it would mean the surge in Treasury yields over the past three months has had little to do with selling by one of the biggest foreign holders of U.S. debt securities. <\/p>\n

To be sure, Wall Street bond-market analysts have more readily blamed the Federal Reserve\u2019s monetary policy, stubborn inflation, and worries about the U.S.\u2019s ballooning debt load as the primary drivers behind the selloff. But bearish voices on social media and elsewhere have fixated on signs of China selling to support their argument that foreign governments are souring on U.S. debt, potentially creating more problems for the U.S. economy. <\/p>\n

Perhaps the most important piece of Setser\u2019s analysis is this: China is widely believed to manage some of its dollar-denominated reserves through foreign custodians like Euroclear, based in Belgium, and Clearstream, which is based in Luxembourg. These entities handle the mundane tasks of warehousing and protecting securities. Based in part on their location, the finer points of their holdings aren\u2019t as easily monitored by U.S. authorities. <\/p>\n

Because of this, the monthly Treasury International Capital report \u2014 better known by the abbreviation \u201cTIC\u201d \u2014 data, seen as an authoritative record of countries\u2019 holdings of U.S. securities, must be adjusted to incorporate some of these other foreign holdings. <\/p>\n

Setser\u2019s complicated methodology uses other U.S. data sets aside from the TIC numbers, while also adjusting for falling bond prices with yields on long-dated Treasurys touching their highest levels in 16 years this month. <\/p>\n

The 10-year Treasury note
\n BX:TMUBMUSD10Y
\n yield stood at 4.711% Thursday afternoon in New York, while the yield on the 30-year bond
\n BX:TMUBMUSD30Y
\n stood at 4.887%. Both saw yields touch their highest levels since 2007 earlier this week. <\/p>\n

His conclusion: China\u2019s U.S. dollar assets have been basically stable since 2015 at between $1.8 trillion and $1.9 trillion. Roughly half of that is believed to be invested in U.S. dollar-bonds, with roughly 40% of that amount consisting of Treasurys. <\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

According to the latest TIC report, which was released on Sept. 18, China\u2019s Treasury holdings declined to $821.8 billion, the lowest level since May 2009. TIC data are reported with a two-month delay, so the September report covers data from July. <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Data purporting to show that China has been dumping its holdings of Treasury bonds have caught the attention of market bears and the financial press. But one economist believes these claims have been greatly exaggerated. And he\u2019s got the numbers to back this up. 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