Foreign Demand For Treasury Bills Suffers Worst Ever Drop As China And Japan Jump Ship


Photo: AP

Foreign holdings of short-term U.S. treasury bills fell by a whopping $53 billion in December, the largest amount ever.

This was mostly due to China and Japan cutting back their positions by about $34.2 $38 billion and $11.5 $1.5 billion respectively.

The funny thing is that the last time the U.S. suffered a drop in demand anything near this, was right before a substantial rally for stocks. Perhaps it’s because markets discovered that U.S. government policy tends to favour protecting stock market investors over government bond investors.

(EDIT: Note the original article AP article cited below appears to have had a few errors when differentiating between all U.S. treasury securities and just U.S. short-term treasury bills, official data is here)


[Emphasis added] 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.

Even with this drop, there’s still a lot of room for more 2008 safe-haven inflows to flee as well:

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.

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