It's really happening - China Sells U.S. Treasuries to Support Yuan

[Lure]

Another bold move from China. Of course someday this was expected, because you can't loan your entire savings to someone else if you wanna build an economy based on private consumption. Here's the graph for US 10 year yield treasuries.

Here's the news coverage.
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China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloombergsurvey.


China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”

Gross’s Tweet
The PBOC and the U.S. Embassy in Beijing didn’t immediately respond to requests for comment. Bill Gross, who manages the $1.47 billion Janus Global Unconstrained Bond Fund, tweeted Wednesday “China selling long Treasuries ????”.

Two-year Treasuries erased an earlier advance, with their yield little changed at 0.67 percent as of 11 a.m. in London. It fell as much as two basis points. The 10-year yield declined three basis points to 2.15 percent, near to its average for the past month.

Chinese sales of U.S. government debt may have kept yields from falling this month as a selloff in global stocks prompted investors to favor the safest assets.

“By selling Treasuries to defend the renminbi, they’re preventing Treasury yields from going lower despite the fact that we’ve seen a sharp drop in the stock market,” David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday. “China has a direct impact on global markets through U.S. rates.”

China Holdings
The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.

The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasuries, according to an estimate from Societe Generale SA. The figure was based on the bank’s calculation of how much liquidity will be added to China’s financial system through Tuesday’s reduction of interest rates and lenders’ reserve-requirement ratios. The assumption is that the central bank aims to replenish the funds it drained when it bought yuan to stabilize the currency.

The yuan rose 0.08 percent to 6.4053 per dollar on Thursday in Shanghai, trimming this month’s decline to 3.1 percent. Daily fluctuations have averaged less than 0.1 percent in the past two weeks as the PBOC intervened to bring stability following the Aug. 11 devaluation. The nation’s Treasury holdings will stop falling once the intervention stops and the currency is freely floating, said Steve Wang, chief China economist at Reorient Financial Markets Ltd. in Hong Kong.

“Strategically, it probably has been China’s intention to find the right time to lighten up its excessive accumulation of U.S. Treasuries,” he said.

China Sells U.S. Treasuries to Support Yuan - Bloomberg Business

 

[Fenrir]

Another bold move from China. Of course someday this was expected, because you can't loan your entire savings to someone else if you wanna build an economy based on private consumption. Here's the graph for US 10 year yield treasuries.

Bold maybe, but impactful? Less so:

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out - Bloomberg Business

If you're worried about China, you should be worried about it for the right reasons

For years, politicians, gloomy newsletter writers, and even some economists have been warning that the U.S. is at the mercy of China, because China owns so much Treasury debt.

In 2010, a group called Citizens Against Government Waste made an infamous commercial called the Chinese Professor, in which a professor in Beijing in the year 2030 teaches his class about the demise of the U.S. because its government spent so much money and mortgaged the country's future to the Chinese.

This fear continues to this day. Conservative news sites play this up regularly (see here and here). And just this past week on the campaign trail, in the midst of the global market turmoil, Chris Christie warned that Obama's reckless borrowing made the U.S. vulnerable to Chinese economic fluctuations.

Anyway, there's just one problem with all this, which is that the story isn't playing out.

As Bloomberg Intelligence economist Tom Orlik notes in a research piece today, China hasn't been adding to its U.S. Treasury holdings for a long time. (Chinese holdings of U.S. Treasuries are a little tough to calculate precisely, because China routes some of the purchases through financial centers such as Belgium and Switzerland—hence the dotted white line above, in addition to the green line, which is the direct holdings.)

Orlik writes in his piece:

The U.S. has long feared that China’s massive holdings of its debt could be deployed as a weapon of financial mass destruction. That’s what prompted former U.S. Treasury Secretary Larry Summers to talk of a 'balance of financial terror' between the two nations during a speech in early 2004.

Now, news reports point to China selling down its holdings of Treasuries to help smooth the yuan’s depreciation path. That’s an important development. But if China’s U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion.

The bottom line is that we haven't seen upward pressure on U.S. rates (at all) during this selling. If anything, U.S. borrowing costs continue to confound economists, who always think higher rates are right around the corner.

Here's a chart of the yield on 10-year and 30-year rates going back to the beginning of 2014. As you can see, the yields remain quite low in the face of this selling.

Not only have rates gone nowhere during this time, but if we blow the chart further, you can see we remain basically at historical lows.

There's just zero evidence that China reducing its holdings of U.S. debt is creating any real pressure on anything. In fact, even if China really wanted to dump U.S. debt for the sole purpose of causing economic harm, there just aren't any alternative assets that are as deep or as liquid.

 

[Lure]

Bold maybe, but impactful? Less so:

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out - Bloomberg Business

If you're worried about China, you should be worried about it for the right reasons

For years, politicians, gloomy newsletter writers, and even some economists have been warning that the U.S. is at the mercy of China, because China owns so much Treasury debt.

In 2010, a group called Citizens Against Government Waste made an infamous commercial called the Chinese Professor, in which a professor in Beijing in the year 2030 teaches his class about the demise of the U.S. because its government spent so much money and mortgaged the country's future to the Chinese.

This fear continues to this day. Conservative news sites play this up regularly (see here and here). And just this past week on the campaign trail, in the midst of the global market turmoil, Chris Christie warned that Obama's reckless borrowing made the U.S. vulnerable to Chinese economic fluctuations.

Anyway, there's just one problem with all this, which is that the story isn't playing out.

As Bloomberg Intelligence economist Tom Orlik notes in a research piece today, China hasn't been adding to its U.S. Treasury holdings for a long time. (Chinese holdings of U.S. Treasuries are a little tough to calculate precisely, because China routes some of the purchases through financial centers such as Belgium and Switzerland—hence the dotted white line above, in addition to the green line, which is the direct holdings.)

Orlik writes in his piece:

The U.S. has long feared that China’s massive holdings of its debt could be deployed as a weapon of financial mass destruction. That’s what prompted former U.S. Treasury Secretary Larry Summers to talk of a 'balance of financial terror' between the two nations during a speech in early 2004.

Now, news reports point to China selling down its holdings of Treasuries to help smooth the yuan’s depreciation path. That’s an important development. But if China’s U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion.

The bottom line is that we haven't seen upward pressure on U.S. rates (at all) during this selling. If anything, U.S. borrowing costs continue to confound economists, who always think higher rates are right around the corner.

Here's a chart of the yield on 10-year and 30-year rates going back to the beginning of 2014. As you can see, the yields remain quite low in the face of this selling.

Not only have rates gone nowhere during this time, but if we blow the chart further, you can see we remain basically at historical lows.

There's just zero evidence that China reducing its holdings of U.S. debt is creating any real pressure on anything. In fact, even if China really wanted to dump U.S. debt for the sole purpose of causing economic harm, there just aren't any alternative assets that are as deep or as liquid.

Hey you can't sell anything if there is no buyer. Lot's of investors from Switzerland and Belgium are in buy mode for US treasuries. I didn't say it has anything to do with China wants to destroy US economy. I don't think they even plan to. China never used the debt of US as a leverage in international relations. Some guys in US went paranoid about it. And now the same guys say it didn't effect anything. They are trying disprove their own fears I guess.

I said there is a one robust intrepretation for this. China is going for personal consumption. It's a bold move for a consumption driven economy.

Besides I agree with your news article that the trend is for direct Chinese lending to US is flat since 2010. Because China diversified it's buying sources. However this clearly shows that Chinese treasury holding via Belgium is also does not have a positive momentum after 2013.

 

[RazorMC]

Doesn't USD appreciating have anything to do with this?

 

[Economic superpower]

This was going to happen after China reformed the yuan exchange rate.

China will continue to reduce its buying of treasuries.

That means in normal times, there needs to be a big buyer to offset the China selling. The only buyer capable of buying so much is the Fed which means it's endless QE.

 

[JSCh]

If the yield did not go up, that mean there is demand and price is stable.
You do not want an asset that you hold a lot of, have falling price once you sell, do you? If you want to sell, now would be the best time.

 

[EAsian]

Bold maybe, but impactful? Less so:

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out

One of the Most Popular Doom Scenarios for the U.S. Economy Is Fizzling Out - Bloomberg Business

If you're worried about China, you should be worried about it for the right reasons

For years, politicians, gloomy newsletter writers, and even some economists have been warning that the U.S. is at the mercy of China, because China owns so much Treasury debt.

In 2010, a group called Citizens Against Government Waste made an infamous commercial called the Chinese Professor, in which a professor in Beijing in the year 2030 teaches his class about the demise of the U.S. because its government spent so much money and mortgaged the country's future to the Chinese.

This fear continues to this day. Conservative news sites play this up regularly (see here and here). And just this past week on the campaign trail, in the midst of the global market turmoil, Chris Christie warned that Obama's reckless borrowing made the U.S. vulnerable to Chinese economic fluctuations.

Anyway, there's just one problem with all this, which is that the story isn't playing out.

As Bloomberg Intelligence economist Tom Orlik notes in a research piece today, China hasn't been adding to its U.S. Treasury holdings for a long time. (Chinese holdings of U.S. Treasuries are a little tough to calculate precisely, because China routes some of the purchases through financial centers such as Belgium and Switzerland—hence the dotted white line above, in addition to the green line, which is the direct holdings.)

Orlik writes in his piece:

The U.S. has long feared that China’s massive holdings of its debt could be deployed as a weapon of financial mass destruction. That’s what prompted former U.S. Treasury Secretary Larry Summers to talk of a 'balance of financial terror' between the two nations during a speech in early 2004.

Now, news reports point to China selling down its holdings of Treasuries to help smooth the yuan’s depreciation path. That’s an important development. But if China’s U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion.

The bottom line is that we haven't seen upward pressure on U.S. rates (at all) during this selling. If anything, U.S. borrowing costs continue to confound economists, who always think higher rates are right around the corner.

Here's a chart of the yield on 10-year and 30-year rates going back to the beginning of 2014. As you can see, the yields remain quite low in the face of this selling.

Not only have rates gone nowhere during this time, but if we blow the chart further, you can see we remain basically at historical lows.

There's just zero evidence that China reducing its holdings of U.S. debt is creating any real pressure on anything. In fact, even if China really wanted to dump U.S. debt for the sole purpose of causing economic harm, there just aren't any alternative assets that are as deep or as liquid.

You wrote these without knowing the basic?There is hundreds of billions of dollars we earn every year,what if we and the FED stop buying US bonds and dollars？US currency and treasuries will be as valuable as toilet paper.

 

[大汉奸柳传志]

If people watch closely enough to China‘s behavior in the market，they will see it is purely profit-driven，nothing China does is beyond the good old “buying low and selling high”. Funny how some paranoid people always over interpret it.

China is a businessman more than anything..If we want the US dead，we would simply nuke them and go down in flames together，rather than hurting our own wallets!

 

[TaiShang]

China Sells Major Part of US Gov’t Bonds to Back Up Yuan
17:51 30.08.2015

In just the last two weeks China has cut its holdings of US government bonds worth around $100 billion. Beijing justified the step as a measure to support the yuan. However, the move can also be viewed as a clear warning to the United States, DWN wrote.

China has massively reduced its holdings of US Treasuries in the last two weeks. Beijing informed the US government about the sales, but has not indicated the exact scope of the disposals, DWN reported.

Yuan vs Dollar: The World is Not US-Centric Anymore

The Chinese central bank sold the US government bonds, both directly, and indirectly Bloomberg reported, referring to insider information. Within the last twelve months, the bank also reduced their foreign exchange holdings by 315 billion dollars.

This step is reportedly designed to help China to stabilize its financial market.

On August 11, China started to devalue the national currency and sell US Treasuries to support the devaluation.

“The central bank will frequently intervene in the foreign-exchange market in the next three months as it needs to ensure the currency is stable,” a representative of Citigroup Inc. in Hong Kong said, as cited by Bloomberg.

At the same time, China's currency policy is increasingly becoming a problem for the US. The massive sales of the US government bonds could significantly reduce the gain on the disposal of investments in the United States.

“Bear in mind here that thanks to the threat of a looming Fed rate hike and a litany of other factors including plunging commodity prices and idiosyncratic political risks, EM currencies are in free fall which means that it's not just China that's in the process of liquidating USD assets,” Zero Hedge wrote.

 

[TaiShang]

Washington’s Financial / Currency War on China: Eclipsing of US Dollar by Yuan
Mahdi Darius NAZEMROAYA | 30.08.2015 | 00:00

The Chinese are in the process of displacing the monopoly of the US dollar. They are dropping their US Treasury bonds, stockpiling gold reserves, and opening regional distribution banks for their own national currency. This will give them easier access to capital markets and insulate them from financial manipulation by Washington and Wall Street.


Fearing the eclipsing of the US dollar and the Bretton Woods system by a rival financial architecture the US response has been an attempt to damage the Chinese markets and increase the value of China’s currency. China has responded through regulations in the market and then quantitative easing of its currency to maintain the low prices of Chinese manufactured goods and exports.

Beijing’s quantitative easing is a reaction or response to the financial manipulation of Washington and Wall Street. Additionally, Washington never thought that the Chinese would respond by dumping US Treasury bonds. Instead of the hysteria about the Chinese economy, «the impending collapse of the US dollar should be getting all of the attention of investors», one US economist (Peter Schiff) has warned. Schiff’s voice is one of many analysts saying that the talk about the Chinese economy faltering is exaggerated and bad spirited.

Financial War against China, Russia: America’s War against the «Community of Destiny»

As the financial architecture of the world is being altered by China and Russia, the US dollar is gradually being neutralized as one of Washington’s weapon of choice. Even the monopoly of Washington’s Bretton Woods system formed by the International Monetary Fund (IMF) and World Bank is being directly challenged. Although they do not constitute alternatives to neoliberal economics, the BRICS News Development Bank (NDB) and Beijing’s Asian Infrastructure Investment Bank (AIIB) are challenging the Bretton Woods system through a rival financial structure.

The US Empire has been cognizant of the moves to establish a rival financial order. Policymakers in the Washington Beltway, the Pentagon, and Wall Street all watched the dual summits of the BRICS and Shanghai Cooperation Organization in the Russian city of Ufa with concern. Up to that point, they had been waging an information/propaganda, energy, financial market, currency war, and general economic war against the Russian Federation. Post-Ufa, they extended the financial market and economic war to China.

Banks and governments in the European Union had been considering and examining the use of China’s national currency, renminbi/yuan, as a reserve currency. This was because of attractiveness of the stability of renminbi as a currency. This had Washington and Wall Street worried and was one of the factors that resulted in the expansion of the currency and financial war on Russia to China.

Using speculation as a psychological weapon and market manipulation, the US launched a financial strike against the Chinese. This was done through an attempt to sink or crash the Chinese stock market and hurt investor confidence in the Chinese economy and its stocks. Beijing, however, reacted quickly by imposing controls on investment withdrawals. This prevented the snowballing of stock selloffs and defused the US financial bomb.

As the price of renminbi began to rise Beijing began quantitative easing to devalue its national currency as a means of continuing export trade. The US Congress and White House began to loudly object. The accused the Chinese of financial manipulation and demanded that Beijing do nothing to readjust the value of the renminbi. What the folks in the Washington Beltway wanted was for the Chinese to let the value of the renminbi to rise as a means of disrupting China’s economy and market.

The Chinese Dragon Strikes Back: Beijing Liquidates its US Bonds

Push China and it will push back. The buck (or, more properly, renminbi/yuan) did not stop with the introduction of regulations by Beijing. China took steps that shock Wall Street and put Washington on notice.

As US financial institutions began trying to hurt investor confidence in China through psychological tactics claiming that the Chinese economy was slowing down and that the Chinese market was in freefall, Beijing announced that it had bought 600 tons of gold in the span of a month and the People’s Bank of China had got rid of over 17 billion US dollars from its foreign exchange reserves. China’s foreign exchange reserves — excluding the foreign reserves of the Hong Kong Special Administrative Region and the Macau Special Administrative Region — were 3.71 trillion (37,111,430 million) US dollars in May 2015. They had dropped to 3.69 trillion (36,938,380 million) US dollars by June 2015.

The financial market webpage Zero Hedge, which had been following this development, explained what it had discovered was taking place: «We then put China's change in FX reserves alongside the total Treasury holdings of China and its ‘anonymous’ offshore Treasury dealer Euroclear (aka ‘Belgium’) as released by TIC, and found that the dramatic relationship which we first discovered back in May, has persisted — namely virtually the entire delta in Chinese FX reserves come via China’s US Treasury holdings».

The main point here was that China’s US Treasury bonds «are being aggressively sold, to the tune of $107 billion in Treasury sales so far in 2015». By following China’s financial transactions in Belgium, Zero Hedge had actually calculated that Beijing had dropped 143 billion US dollars in three months. A few months later, in August, the Chinese dropped 100 billion US dollars worth of US Treasury bonds in the span of two weeks.

A day later, on August 27, Bloomberg corroborated what Zero Hedge had identified. A Bloomberg report explained the following: «The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey».

While the Bloomberg emphasized that the Chinese were using US dollars to buy their own national currency, it casually mentioned, «Strategically, it probably has been China’s intention to find the right time to lighten up its excessive accumulation of U.S. Treasuries», citing an economist at Reorient Financial Markets Limited in Hong Kong.

The Eclipsing of the US Dollar by the Chinese Renminbi

Wall Street should be worried about the economic problems at home in the US instead of trying to undermine China. The talk about the slowing down of the Chinese economy in part is distraction. It diverts attention from the decline of the US and is meant to enforce the efforts of Washington and Wall Street to rein in Beijing. The Chinese, however, continue to move forward undeterred.

Beijing selected Qatar as its first renminbi clearing house in the Middle East and North Africa for regional exchange markets there in April 2015. The name of this clearing house is the Qatar Renminbi Centre. It will circumvent US financial structures and give greater access to oil and natural gas from the Middle East and North Africa to the People’s Republic of China.

Despite the wishes of Wall Street and Washington, the Silk World Order is moving forward.

 

[Bussard Ramjet]

You wrote these without knowing the basic?There is hundreds of billions of dollars we earn every year,what if we and the FED stop buying US bonds and dollars？US currency and treasuries will be as valuable as toilet paper.

The US wants you to stop buying, because it will appreciate the RMB.

 

[EAsian]

The US wants you to stop buying, because it will appreciate the RMB.

LOL,what an indian joke.By your logic China also want the US stop buying Chinese products too,because it will appreciate the US Dollar.What a seriously damaged indian head,LOL.

 

[Jlaw]

If people watch closely enough to China‘s behavior in the market，they will see it is purely profit-driven，nothing China does is beyond the good old “buying low and selling high”. Funny how some paranoid people always over interpret it.

China is a businessman more than anything..If we want the US dead，we would simply nuke them and go down in flames together，rather than hurting our own wallets!

hahah...well, true but we are peace loving people. Using nukes would be our last resort.