Mon, Oct 19, 2015 page15

• US treasury notes sell at record pace

  TRUTH OF OWNERSHIP: The US Treasury data released on Friday indicates China has been selling its US debt in order to recover from the yuan devaluation in August

  • Bloomberg
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  Foreign governments and central banks sold long-term US Treasuries at a record pace in August, according to US Department of the Treasury data released on Friday in Washington.

  The data are less clear on which countries were the main culprits in the US$41.1 billion of net sales. While holdings attributed to China, the largest foreign owner of US Treasuries, rose in August by US$1.7 billion to US$1.27 trillion, those in Belgium plunged by US$44.8 billion to US$110.7 billion.

  Belgium has been regarded by analysts, including David Woo of Bank of America Corp, as a transit point for China’s transactions involving US Treasuries. The US Treasury data include a disclaimer that a nation’s assets in a custodial account in a third country does not reflect the true ownership of securities, so looking at holdings attributed to individual nations can be misleading.

  “There’s no other buyer that would have the incentive to go through Belgium,” said Aaron Kohli, a fixed-income strategist at Bank of Montreal, one of 22 primary dealers that trade with the US central bank.

  “There’s no definitive link there, but a lot of what people glean is from the sheer size of the holdings. Definitely the decline suggests there’s been some significant active selling,” he said.

  Attributing the Belgium sales to China would make more sense, because the world’s second-largest economy has been selling US debt to support the yuan after a surprise devaluation spurred bets on a weaker currency.

  Bloomberg News reported in August that China cut its holdings of US Treasuries that month to raise dollars needed to support the yuan.

  Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said a person familiar with the matter, who asked not to be identified as the information was not public.

  The data flesh out some of the story behind the month’s global financial turmoil that contributed to the US Federal Reserve’s decision last month to refrain from raising interest rates.

  With China’s economy weakening and the greenback up 19 percent in a year against a basket of currencies, the People’s Bank of China on Aug. 11 unexpectedly devalued the yuan, resulting in its sharpest decline since 1994.

  China had previously reported a record US$93.9 billion drop during August in the nation’s foreign-exchange reserves and the country’s stock-market plunge later in the month sparked a worldwide selloff.

  The reserves dropped another US$43.3 billion last month to US$3.51 trillion, bringing the decline to US$479 billion since the peak in the middle of last year.

  Private foreign investors bought a net US$6.2 billion of US Treasury bonds and notes in August, resulting in net foreign selling of about US$35 billion when including the official sales.

  The US Treasury’s report, which also contains data on international capital flows, showed net foreign purchases of long-term securities of US$20.4 billion in August.

  It showed a total cross-border outflow, including short-term securities such as US Treasury bills and stock swaps, of US$9.2 billion.
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