Every year in February, the Treasury department releases its adjustment to foreign purchases of Treasury bond holdings as of the previous June (with revised and overriding estimates for all the intervening months in the interim, as well as previous monthly forecasts). It did that earlier today. And while many may have been expecting the revision to show that contrary to Zero Hedge claims China has in fact been building up its Treasury stake (following the now traditional transfer of UK purchases to China), the reality is that not only has China indeed been dumping US exposure (first reported by us previously when we observed the plunge in holdings in the Fed’s custodial account), selling over $100 billion in Treasurys in December alone (bringing its total to $1152 billion, and down 12% from its June total of $1307 billion) but that probably far more curiously, the UK is no longer a shadow buyer of Chinese bond accumulation and instead has become a secret accumulator of Russian holdings.
First, here is a link to the revised TIC data as of this afternoon. That lack of Chinese trade surplus is really starting to bite not only China, but also the US, which as we noted last time, will be forced to rely ever more on domestically funded purchases of USTs: read Primary Dealers and the Fed, as the rest of the world developing world, also known as US Treasury buyers, clams down and exports far less to a recessionary Europe and contracting America. As the chart below shows, Chinese holdings are sliding, no matter how one cuts the data.
So compared to the pre-revision Chinese holdings number, which was $1101 billion, China is still accumulating bonds, right? Well, not really, because on one hand a decline is a decline even relative to a different benchmark. But more importanly, most had assumed that the UK’s pre-revision number of $414.8 billion in Treasury holdings would be allocated almost entirely to China. As it turns out it wasn’t.
In fact of the post-revision UK holdings of $112.4 billion, at best $50 billion, or 17% was allocated to China. Where did the rest go? Well, of the top holders, $40bn went to Japan, $25 billion went to the Oil Exporting countries, $20 billion went to Brazil (which is becoming an increasingly dominant buyer of US paper), while Carribean Banking Centers (aka hedge funds) saw about $50 billion allocated to them.
Yet the biggest surprise, is that contrary to previous speculation, Russia has not been dumping its Treasurys. In fact the country’s holding of $150 billion are the same as they were back in June, and over $60 billion more compared to the pre-revised number.
In other words the biggest beneficiary of stealthy UK accumulation is no longer China (which is not accumulating US paper at all and quite the contrary), but Russia.
Russian holdings pre-revision:
Then again, this is the TIC data, which is notoriously wrong all the time. Best advice: keep a track of that Chinese trade surplus. If it becomes a deficit (just like Japan did recently), that is the first signal that things are changing dramatically from an international flow of funds perspective. It also means that unless the US finds subtitute demand, most likely from within, the only remaining buyer will be the entity that already has the largest holding of US paper – the Federal Reserve.