🔹 Two of the world’s biggest foreign holders of US 🇺🇸 Treasuries, China and Japan have been offloading U.S. debt in Q3 of 2024. Japanese investors sold a record $61.9 billion of the securities in the three months ended Sept. 30. Funds in China 🇨🇳 offloaded $51.3 billion during the same period, the second biggest sum on record.
🔹 Japan’s 🇯🇵 selling may have been in part amplified by the nation’s intervention in the foreign-exchange market to buy the Yen. Japan and China still own $1.02 trillion and $731 billion worth of Treasuries, respectively. The yield on a US 3-month bond is 4.54% and on the 5-Year bond is at 4.30%.
🔹 On the other side of the bond trade, China will sell dollar denominated bonds in Saudi Arabia this month, its first debt issuance denominated in the US currency since October 2021. China is Saudi Arabia’s 🇸🇦 most important trade partner, buying 16% of the kingdom’s exports and supplying 23% of its imports in Q2 2024.
🔹 Possibly, investors are offloading US bonds due to an expectation of rate hikes by the US Federal Reserve. Some countries are selling US bonds to bolster their own currency value and also as an effort to diversify from dollar assets. Israel 🇮🇱 is one such example of a country reducing US Treasury bond holdings while increasing its assets in yuan, Canadian dollars, Australia dollars and yen.
🔹 Last November, Moody's lowered its outlook on the U.S. credit rating to "negative" 🔻from "stable" citing large fiscal deficits and a decline in debt affordability. One year ago exactly, this channel highlighted that the Yen carry trade will affect the US bond market due to the BoJ's flexibility in its own bond market.
Photo Source: Bloomberg
🔹 Japan’s 🇯🇵 selling may have been in part amplified by the nation’s intervention in the foreign-exchange market to buy the Yen. Japan and China still own $1.02 trillion and $731 billion worth of Treasuries, respectively. The yield on a US 3-month bond is 4.54% and on the 5-Year bond is at 4.30%.
🔹 On the other side of the bond trade, China will sell dollar denominated bonds in Saudi Arabia this month, its first debt issuance denominated in the US currency since October 2021. China is Saudi Arabia’s 🇸🇦 most important trade partner, buying 16% of the kingdom’s exports and supplying 23% of its imports in Q2 2024.
🔹 Possibly, investors are offloading US bonds due to an expectation of rate hikes by the US Federal Reserve. Some countries are selling US bonds to bolster their own currency value and also as an effort to diversify from dollar assets. Israel 🇮🇱 is one such example of a country reducing US Treasury bond holdings while increasing its assets in yuan, Canadian dollars, Australia dollars and yen.
🔹 Last November, Moody's lowered its outlook on the U.S. credit rating to "negative" 🔻from "stable" citing large fiscal deficits and a decline in debt affordability. One year ago exactly, this channel highlighted that the Yen carry trade will affect the US bond market due to the BoJ's flexibility in its own bond market.
Photo Source: Bloomberg