Recent concerns about a Chinese liquidation of its Treasury holdings in advance of, or in response to, a trade war appeared to have been greatly exaggerated one month ago, because according to the Treasury International Capital data from one month ago, China had actually added $8.3 Billion to its holdings in December, bringing the total to $1184.9BN, $26 billion more than a year ago. Meanwhile, we reported that the real seller was Japan, which dumped $22.6 billion in TSYs, bringing its total to just over $1.061 trillion, the lowest since the start of 2012.
Fast forward to today when the “China is liquidating treasurys” narrative is set for a comeback, because according to the latest just released TIC data, in the first month of 2018, Chinese Treasury holdings declined by $16.7 billion (a number which recall is price adjusted), to $1.168 trillion, the lowest since July of 2017 and the biggest monthly drop since September.
Meanwhile, Japan’s liquidation appears to have been put on hold, as the land of the rising sun added $4.3 billion, bringing its new total to $1.066 trillion.
Other notable holders were mixed:
- Russia sold $5.3BN to $96.9BN
- The United Kingdom sold $6.7BN to $243.3BN
- Belgium, i.e. the proxy for China and other anonymous buyers, rose by $4.5BN to $123.7BN
- Cayman Islands, i.e. hedge funds, shed some $3.9BN to $241.9BN
The good news for all the recent buyers of US debt is that thanks to Trump’s budget, there’s plenty more where that came from.
Looking at the broader universe of all US International capital transactions, in January, foreign public and private entities bought a total of $8.4BN in Treasurys while adding $22.5BN in Agencies; they also sold a modest $2.2 BN in corporate bonds.
But the biggest surprise – for the second month in a row – was the surge in US stock purchases by public and private foreign entities, which in January amounted to a whopping $34.5 billion (of which official entities bought $952MM while private entities bought $33.5BN), the second highest monthly total on record, and smaller only compared to the record foreign buying in May 2007, when offshore entities bought a record $42 billion.
So in addition to buybacks, algos, CTAs, risk parities and a relentless retail bid, here is another reason for the tremendous equity meltup at the start of 2018: furious buying of US stocks by foreigners in January of 2018…. a trend which however ended with a bang just 5 days later when the February 5 volocaust crushed all countless human and robotic momentum chasers.
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