The Treasury International Capital report gauges foreign demand for U.S. government debt. And last week’s report showed that China sold a record amount of U.S. Treasury securities in August.
China sold 3.1% of its Treasury holdings (which amounted to a $36.5 billion sell-off). And that brought the country’s Treasuries stockpile down to $1.137 billion, the lowest in a year. And it marked the biggest dollar sell-off by China this year.
Not to worry, though. That still left China as the largest holder of U.S. government debt (followed by Japan with $936.6 billion in holdings). And China’s holdings still make up 10% of outstanding Treasury debt. And it is not likely that the selling is a new trend for our largest lender. China may very well have simply been selling into the rally in Treasuries. It is “not a question of people disinvesting in the U.S.”, rather “this is a lot more technical in nature that has to do with dollar strengthening and opportunistic selling”, according to the head of U.S. interest rate strategy at Morgan Stanley.
But even as China was selling, other buyers stepped in. Foreign investors purchased $87 billion in short and long-term debt; private investors were heavy buyers. With that, total foreign ownership of Treasuries increased 2%.
It isn’t likely that the reduction in China’s Treasury holdings speaks to macro economic concerns about the U.S. Rather, simply a foreign Treasury holder selling at the sight of an opportunity.