Foreign demand for Teasury securities falls

crgarcia · Feb 16, 2010

Quote from S2007S:

Foreign demand for Teasury securities falls

By MARTIN CRUTSINGER (AP) Ã¢â¬â 1 hour ago

WASHINGTON Ã¢â¬â The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.

The big drop in China's holdings meant that it lost the top spot in terms of foreign ownership of U.S. Treasuries, dropping to second place behind Japan.

Japan also reduced its holdings of U.S. Treasuries, cutting them by $11.5 billion to $768.8 billion in December, but that amount was still more than China's December total of $755.4 billion.

The $53 billion decline in holdings of Treasury securities came primarily from a drop in official government holdings, which fell by $52.3 billion. The holdings of foreign private investors fell by $700 million during the month of December.

For all of 2009, foreign holdings of U.S. Treasuries dipped by $500 million. In 2008, foreigners had increased their holdings of U.S. Treasuries by $456 billion as a global financial crisis triggered a flight to the safety of U.S. government debt.

That flight to safety had driven down the interest rates that the government was having to pay on its debt to record lows with rates on some short-term securities dipping into negative territory for brief periods.

The Obama administration on Feb. 1 released a new budget plan which projects that the deficit for this year will total a record $1.56 trillion, surpassing last year's record of $1.4 trillion deficit. The trillion-dollar-plus deficit have been caused by a deep recession, which has reduced government tax receipts, and the massive spending that has been undertaken to jump-start the economy and stabilize the financial system.

The administration has pledged to begin addressing the huge government deficits with Obama saying he will soon appoint a commission to recommend ways to trim future deficits.

Overall, the Treasury Department said that foreign net purchases of long-term securities totalted $63.3 billion in December, down from $126.4 billion in November. This category covers Treasury securities and private company bonds.

China's holdings are a result of the huge trade deficits the United States runs with China. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities and other dollar-denomina ted assets.

American manufacturers argue that China's huge dollar reserve reflect a strategy by the Chinese government to keep its currency artifically low against the dollar as a way to boost Chinese exports and dampen demand in China for American products.
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Hardly news.

The Fed is buying about 50% of T-Bond auctions.
They just have to buy 60% or 70%

misterno · Feb 16, 2010

so where does the Fed find all that money?

EMRGLOBAL · Feb 16, 2010

china sold some bonds today...

They see the writting on the wall.

Dems are finished....Gridlock for 3 years... Dollar should stay weak with the feds keeping rates low.

They rather unload on this rally...

drsteph · Feb 16, 2010

We could easily retrace to 1.27ish on the Euro this move... I do like getting shorter the USD but merely at better levels. No real rush on this thing.

S2007S · Feb 16, 2010

Quote from drsteph:

We could easily retrace to 1.27ish on the Euro this move... I do like getting shorter the USD but merely at better levels. No real rush on this thing.
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Some guy on bloomberg the other day says 1.25 is possible in 2010.

krazykarl · Feb 17, 2010

Quote from BarneyFrank:

"Foreign demand for Teasury securities falls"

this is only the start, it is highly likely that within a few years, there will be a crazy run on the USD

I think the US gov is well aware of this possibility, that is why they are spending like crazy, while they can
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People have been singing this song since 2001. The experienced people aren't holding their breath.

Martinghoul · Feb 17, 2010

A: TIC-reported Chinese holdings of USTs dropped due to maturation of a large amount of bills (but cash is still on deposit, so it's actually not about China being a seller of USTs)
B: Better said here:
http://econompicdata.blogspot.com/2010/02/china-sells-treasuries-or-did-they.html

falcontrader · Feb 17, 2010

this means in june the fed will start lifting interest rates up, that is the only way to attract the money they need. that is why you see the dollar rally. it is between the fed and the u.s. people ,lift interest rates and you will see the second leg down in the real estate market. so if you are still long real estate and not using it to live in get out now, interests are going to go up fast and hard.

endsongs · Feb 17, 2010

Quote from RiceRocket:

That was december, it will pick back up in the Jan and feb tic data. It's probably due to the tapering off of federal reserve currency swaps. That one time drop, will even out.

Secondly, the federal reserve 0 fed funds rate is allowing banks to borrow at zero and make a free arbitrage in treasuries. As long as the fed funds rate remains this low, there will be no problem financing the national debt. The fed is essentially subsidizing the national debt through the banking system.
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Yes, RR, many have made the same "free money argument". But what hapens when the interest rates on this cheap money rise substantially, as they must? About the same as with any bait and switch: game over