Tuesday, December 18, 2018

WARNING: China Continues to Unload US Treasury Debt

Chinese holdings of U.S. Treasurys are at their lowest levels in nearly a year and a half.

Data released on Monday by the U.S. Treasury Department shows China’s holdings of U.S. government bonds fell in October, to $1.138 trillion. That is the fifth straight month of declines and the lowest total since May 2017.

The Chinese appear to be selling off the debt to prop up their currency, the yuan, against the dollar.

Still, it is a limited drawdown that doesn’t match the same aggressive Treasury liquidations seen in 2015 and 2016, but it is still concerning given that the Treasury must issue more and more debt as a result of the exploding deficit.

With China not increasing its Treasury supply, and in fact, going in the opposite direction, buyers for Treasury debt must be found elsewhere which might require higher interest rates on long-term U.S. interest rates and an even more intense crowding out of the private sector in debt markets. Not good for the U.S.economy which appears close to recession anyway.


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