Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.
For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.
China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion. But in August, the real selling started when the yuan suddenly spiraled down further after its devaluation. Panicked, and fearful of losing control over their currency, officials at the People’s Bank of China sold Treasuries and bought yuan to stabilize the currency.
That month, China’s foreign exchange reserves, which include a variety of currencies, dropped by a record $93.9 billion. And in September, they dropped another $43.3 billion, to $3.51 trillion. It was the fifth month in a row of declines. The Journal:
Internal estimates at the PBOC show that it spent between $120 billion and $130 billion in August alone in bolstering the yuan’s value, according to people close to the central bank.
Russia unloaded $32.8 billion in Treasuries in the 12-month period ended in July; Norway, which like Russia was hit by the oil price rout, sold $18.3 billion, and Taiwan $6.8 billion.
Not all central banks were sellers. India added $36.6 billion to its stash over the 12-month period. And the Fed, which after five years of QE is sitting on more Treasuries than any other central bank, is hanging on to its pile of $2.45 trillion, diligently rolling over any maturing debt.
This is what that staggering reversal of flows looks like; note how foreign central banks started curtailing their purchases already in 2013, when the end of the Fed’s QE moved into sight:
But for every sale there must be a buyer. And there were plenty of them, companies, funds, and individuals around the world. And if push comes to shove, and Treasuries begin to spiral out of control under toxic selling pressure, the Fed, which stops before nothing, would jump in and buy whatever China is selling. Or at least, everyone assumes that it would. And so yields have stayed low. In fact, the government was able to auction off thee-month T-bills at a yield of zero for the first time in history, just when central banks are dumping Treasuries, and despite a multi-day rally in stocks.