Thread

US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments

152 points · 132 comments · iamnothere

reenorap · 1789749185 · focus · HN ↗
Yes, that's called Quantitative Easing after the Global Financial Crisis. The peak in the graph was 2008 after which the US issues a shit ton of debt which was bought by the Fed. China used to be the biggest holder of US Treasuries but now it's the Federal Reserve and Japan.
But the idea that you look at that graph as say it's "unappetizing" is dumb. Most foreign governments besides China have INCREASED their UST holdings. The only reason why the % is dropping is because of the massive amount bought by the Fed which messed up the %.
1. method_capital · 1789749430 · focus · HN ↗
  Yeah ... and exactly how many of our treasury auctions have failed? Zero. Overbid by foreign parties, all of them.
  1. reenorap · 1789749974 · focus · HN ↗
    Exactly. Same as when Bessent wanted to buy 6B in long bonds but only bought 5.XB, people said that it failed but anyone who understands knows that it's the opposite. The oversubscription rate is normally 3X or more but this time it was 2X which means that people would rather keep their long bonds, which shows confidence in them.
2. reenorap · 1789749726 · focus · HN ↗
  Every graph of foreign ownership is up and to the left over the last 10 years
  <a href="https://tradingeconomics.com/united-states/foreign-treasury-holdings-canada" rel="nofollow">https://tradingeconomics.com/united-states/foreign-treasury-...
  <a href="https://tradingeconomics.com/united-states/foreign-treasury-holdings-uk" rel="nofollow">https://tradingeconomics.com/united-states/foreign-treasury-...
  <a href="https://tradingeconomics.com/united-states/foreign-treasury-holdings-belgium" rel="nofollow">https://tradingeconomics.com/united-states/foreign-treasury-...
  Only China has gone down:
  <a href="https://tradingeconomics.com/united-states/foreign-treasury-holdings-china" rel="nofollow">https://tradingeconomics.com/united-states/foreign-treasury-...
  I stand corrected about Japan it looks like they've been flat over the last 10+ YEARS
  <a href="https://tradingeconomics.com/united-states/foreign-treasury-holdings-japan" rel="nofollow">https://tradingeconomics.com/united-states/foreign-treasury-...
  Basically the article linked above is dumb, and they either are stupid and don't understand what they're talking about or trying to cast a false narrative
  1. carefree-bob · 1789750140 · focus · HN ↗
    China also has not gone down, they are merely shifting their ownership structures. China accumulated over a trillion in dollar denominated assets last year, but rumors are the big players have been Chinese regional banks. It's a byzantine mess of hidden ownership structures over there.
    iamnothere · 1789750983 · focus · HN ↗
    If true, this would change the narrative. But I wouldn’t base anything on rumors. China is also rapidly building its supply of bullion and is attempting to shift trade away from the USD, so it would make sense for it to be drawing down on USD reserves. (Not that it will ever eliminate those reserves completely.)
    carefree-bob · 1789751498 · focus · HN ↗
    It doesn't matter whether it is Chinese regional banks, or SAFE, or any other instrument. Brad Setzer tries to do a heroic job decoding this stuff at his CFR blog (<a href="https://www.cfr.org/blogs/follow-the-money" rel="nofollow">https://www.cfr.org/blogs/follow-the-money) but at the end of the day, all that matters is total foreign holdings of dollar denominated assets - that measures their exposure to the dollar.
    Everything else is portfolio allocation choices between treasuries or agencies or BAA corporates or AAA corporates, there are so many different instruments to invest in, you can shift your holdings back and forth however you like, all while keeping your dollar exposure exactly the same. And you can set up a fund in the Caymans and hold your assets there. And China does all of that. So really it is all fungible once you are in the "foreign ownership" bucket.
    iamnothere · 1789752233 · focus · HN ↗
    Your point about dollar exposure is true, we just have limited insight into foreign private ownership, as the article points out. If nations are using these vehicles to conceal their dollar exposure (or for some other purpose that results in the same effect), then we will have trouble understanding the functioning of the global economy and the risks present in the system. That seems important.
    Also, equities and treasuries are not equivalent. If foreign holdings are moving to equities over treasuries, the added risk will be a serious problem in a crisis. It could also be a sign that some nations are being “encouraged” to prop up equity markets, either by the US or large domestic holders of US equities, which is a rumor that I’ve come across.
    (If they are just shifting from treasuries to other types of bonds, that’s less risky but still moreso than treasuries. And it may affect yields.)

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