Tuesday, August 20, 2013

Shocking Sales of Treasury Securities By Foreigners

Have foreigners finally had enough of US Treasury debt that they have been buying up for years? It might be the case.

Ed Yardeni writes today:
The US Treasury released data last Thursday tracking international capital flows for the US through June. The outflows out of US securities was shocking. Especially troubling was the amount of US Treasuries sold by foreigners. Their outflows exceeded those from US bond funds. Of course, some of the outflows from the bond funds could be attributable to foreign investors. Nevertheless, the data suggest that foreign investors may have been more spooked by the Fed’s tapering talk in May and June than domestic investors.

As the US federal deficits have swelled, the US government has become more dependent on the kindness of strangers. Apparently, they are losing their interest in helping us out with our debts.
I wrote last week in the EPJ Daily Alert:
 Foreign selling of U.S. long-term portfolio assets rose for a second straight month in June.
The net long-term portfolio investment outflow was $66.9 billion after a $27 billion net decline in May. Net selling of long-term Treasuries by private foreign investors increased to $40.1 billion from $29 billion the prior month, the department said.

Private foreign investors were net sellers of all categories of U.S. long-term portfolio assets -- government debt, agency securities, corporate bonds and stocks in June, the report showed

NOTE WELL: Total net selling of Treasuries in June, combining official and private transactions, was an all-time high of $40.8 billion, according to data compiled by Bloomberg going back to 1977.

Including short-term securities such as Treasury bills and stock swaps, the total cross-border outflow was $19 billion in June,

China stayed the biggest foreign owner of U.S. Treasuries in June, but holdings fell $21.5 billion to $1.276 trillion. It was the biggest drop in China’s Treasuries holdings selling since December 2011.

Japan, the second-largest holder, lowered its holdings by $20.3 billion to $1.083 trillion.

This is very serious liquidation---and, as the data show, both China and Japan have huge amounts of Treasury debt that can still be liquidated.

Not surprisingly, interest rates are climbing upward again this morning.

The 10-year Treasury note is on track to close the day at its highest level since July 2011. The benchmark note’s yield, is up 8 basis points on the day at 2.90%.

Following the spike in yields, Deutsche Bank chief U.S. economist Joseph LaVorgna reiterated his assertion via Twitter that, “We are likely to see the yield on the 10-year Treasury note move above 3% over the next few months.”

As far as I am concerned 3.0%  will just be a short stop and the 5.0% level will be the real short-term target----and then the excess reserves start flowing into the system. What a mess.

No comments:

Post a Comment