Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Why Are Foreign Nations Dumping US Treasuries

Interest-Rates / US Bonds Dec 21, 2016 - 03:38 PM GMT

By: Dan_Steinbock

Interest-Rates

Recently, foreign holders of US treasuries have been dumping their holdings more and at record pace. Optimists see it as a temporary fluctuation. Realists warn about structural change.

According to US Treasury data, major foreign holders of US treasury securities have been reducing their holdings by almost $250 billion since March. The pace of dumping has intensified with some $200 billion reduced in just past two months.


In the process, Japan has surpassed China as the major holder of US treasuries for the first time in nearly two years. While the mainland still has some $1,116 billion in US treasuries, it has reduced its holdings by $130 billion in just a year, along with Saudi Arabia ($18 bn), Russia ($13 bn), Turkey ($9 bn), and Norway ($18 bn).

What’s going on?

Temporary glitch or structural change

While some argue that the reductions by foreign holders only reflect seasonal fluctuations, this may no longer be true. Until recently, foreign holdings of US treasuries climbed steadily peaking at $6.280 trillion last June. Since then, they have declined by almost 4 percent (or $240 billion).

Indeed, some observers argue that US treasuries have never been sold so aggressively over a 12-month period.
The most benign scenario is that foreign holdings of US treasuries have plateaued since June 2014 when they first crossed the $6 trillion milestone. The less-benign scenario is that these holdings began a decline last summer – when President-elect Trump won the Republican nomination.

The plunge of US treasuries to less than $6 trillion by January 2017 – especially if the rapid pace of dumping will prevail – would further reinforce such perceptions.

There are obvious reasons for some foreign countries to reduce their holdings. China has been selling holdings to defuse sharper devaluation of the renminbi. Other major sellers – Saudi Arabia, Russia and Norway – are oil exporters, which have sold US treasuries to gain funds to offset the drop in dollar-denominated oil prices and to contain the deterioration of budget deficits.

Some sellers – Saudi Arabia, Russia and Turkey – also struggle with geopolitical challenges that are forcing them to reassess the weight of the US dollar and US ties in their foreign economic relations.

Finally, all foreign holders are concerned that the Trump administration will soon initiate its fiscal stimulus, which could almost certainly translate to a major spike in future debt issuance by the US.

Trump’s debt tornado, Fed’s hikes and treasuries
The net effect of foreign selling of US treasuries, especially if it does not slow in the next few months, looks increasingly like the kind of foreign liquidation that Washington has feared for years. Moreover, it may push the Fed into a corner.

If Trump will trigger a $1 trillion debt tornado at a moment, when Fed chief Yellen and her board seek to accelerate tightening – in addition to recent 25 basis points hike, three comparable rate increases in 2017 – Trump can no longer rely on the Fed to ease and thus to monetize the debt issuance.

While Trump has said that he would like to replace Yellen because she is not a Republican, her term will not end until February 2018. Last June, Trump characterized Yellen as "a low interest rate person,” like himself.  "If we raise interest rates and if the dollar starts getting too strong, we're going to have some major problems,” he warned. That shift is now a reality.

Moreover, as Trump is about to dramatically polarize Washington, America and the world community, he will force Yellen to draw contingency plans (including halting rate hikes, initiating a fourth wave of quantitative easing, and so on).

If Trump takes that path, he may incentivize foreign holders of US treasuries and the international community to reassess the weight of US treasuries and US dollar in the world economy even faster than anticipated.

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. He is the CEO of Difference Group and has served as Research Director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net   

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules