It's Not China That's Liquidating US Treasuries

Recent fears, warranted or not about the potential for retaliatory liquidation by China of its US Treasury holdings appear to have been once again vastly exaggerated because according to the latest TIC data released, America's trade-war nemesis added $11 billion in TSYs in March, bringing its total to a 5 month high, following the addition of $8.5 billion in March, and nearly $100 billion higher over the past year.

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But while China is still buying - for now, given the lagged data - one other notable nation is selling... significantly.

The second largest foreign US creditor, Japan, has been liquidating aggressively in recent months and in March, Japan sold $16 billion in TSYs (the most of any nation in March), bringing its total to just $1,043.5BN, the lowest total in 7 years, since Oct 2011.

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And while last month we already knew that Japan was dumping US paper, a new seller emerged this month: hedge funds, i.e. the so-called "Cayman Island" entity, which in March sold just shy of $10 billion in Treasurys.

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Meanwhile, and perhaps most unexpected, at a time when US-Russia relations are the worst they have been in decades, Russia actually added $2.3BN in US paper.

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All this Treasury buying (and selling) was during the chaotic swings of the March among concerns that China would stop buying or even buy US paper: recall TIC data is 2 months delayed. But April will likely be the big tell as that was during the peak of the escalating trade war tensions, when Trump and Xi were going at it head to head.

Furthermore, as we showed over the weekend, the far more recent Fed Custody holdings data released by the Fed last week showed that the selling by foreign central banks started in earnest in March and continued well into May, so expect next month's data to be especially turbulent.

Meanwhile, the good news for all these buyers of US debt is that thanks to Trump's budget, there's plenty more where that came from.

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