Foreign Governments Dumping U.S. Assets

The TIC (Treasury International Capital) data was released for November today, and it was not pretty.

Net foreign purchases of long-term U.S. securities were negative $56.0 billion. Of this, net purchases by private foreign investors were negative $18.9 billion, and net purchases by foreign official institutions were negative $37.1 billion.

This marks the third time in four months that foreign governments and institutions sold US Long Term securities. These are defined as treasury bonds, agency bonds, corporate bonds and equities. Foreign entities dumped 92.6 billion dollars of US long term securities in the past 2 months, and foreign governments sold US long term assets in everyone of the last 4 months for a combined 69.3 billion dollars.

I have no idea how long the treasury market is going to continue to whistle past the graveyard, but it is becoming increasing clear that foreign governments may not be interested in continuing to finance US deficits. This is the elephant in the room for the treasury market and the dollar. Watch these numbers carefully.

Disclosure: Long TBT, Euro.

Comments

[Child Psych...:]

Isn't this an investment forum? Let's get back to the question; who is buying the bonds and driving down yields--if the furriners are selling? Also, any thoughts on how to go 1X short 10- and 30-years in an IRA. I don't like TBT because of the constant leverage trap problem etc.

Jan 18 09:35 AM

[Kelly Liebe...:]

The sad fact is millions of Americans have been duped into buying treasuries etc... because they were told that this is where the safety is..Hence the bubble. It will burst and those that saw this coming will be relieved they did not pay attention and are long on Gold, Silver and other precious metals.

Jan 18 09:54 AM

[User 337526:]

someone is, look at where rates are, probably the us government, since shorter term rates are staying low and long term rates are just an extrapolation, i don't think you can take the article at full value...that being said, i'm bullish on gold


On Jan 18 08:42 AM George Kesarios wrote:

> Who's doing all the buying and why has not the bond market not tanked
> by now?

Jan 18 10:04 AM

[Gtarras:]

Psychiatrist, thanks, i was about to make similar comment...

try RYJUX, i believe it is not leveraged fund...

I am also curious, if nobody wants US debt, why yields are dropping and are at all times lows.. Hmm.... How about: the alarmist author is over the top and there is a ton of appetite for US debt? who really cares where it is coming from, externally or internally... If the country can finance the stimulus, who cares how its done? Chinese dollar is as good as American. Also, let me remind you, that proposed $1 trillion in stimulus is only 7% of US GDP...


On Jan 18 09:35 AM Child Psychiatrist wrote:

> Isn't this an investment forum? Let's get back to the question; who
> is buying the bonds and driving down yields--if the furriners are
> selling? Also, any thoughts on how to go 1X short 10- and 30-years
> in an IRA. I don't like TBT because of the constant leverage trap
> problem etc.

Jan 18 10:39 AM

[donzelion:]

Not all Treasury purchases are investments, or at least, investments intended to generate financial returns. Gulf Arab states always bought billions of dollars of American products they didn't need just to keep American politicans happy (along with several other countries) - now they can just buy dollars themselves. China, on the other hand, has its eyes on Taiwan; a little quiet nudging may be all it takes to convince the U.S. to back down on providing them with arms or other tangible support.

There is nothing free in this world, and those who wind up hurt the most are the ones who think otherwise.

Jan 18 11:02 AM

[4Annie:]

The Treasury/Bernanke are monetizing the debt (expanding their balance sheet) by buying the long end of the curve to support the housing market & keep rates low. In the flight to safety-normal stock investors turning to US Treasury Bonds. How long this can continue is anyone's guess. It would seem to me to be an unsustainable long term strategy? or not.

Jan 18 11:06 AM

[Gem Hudson:]

But don't answer up to their altar call and that is too much of their sacrilegious.

Nancy Polosi bigger than the biggest government spending is the only way to pay up still without making much of the money. She is having more problem in spreading what wealth around because nobody else is building up the wealth. Now building wealth is job number one so that they can spread less of that fractional value around out from an reserve of congressional I.O.U. bonds. Their credit bubble have popped.

Jan 18 12:19 PM

[Timmothy Posey:]

I used to be very bullish on TBT tripling this year but I've come back to the assessment that the Fed will do anything, including buying all the Treasuries themselves to keep yields low and also monetize the debt for the U.S. Government Budget. Will this involve some trickery and creating "money" out of thin air? Yes, but I still think they will do it.

Besides, TBT has horrible performance decay.

Jan 18 12:59 PM

[Richard K:]

The recent pattern has been for equities investors, particularly big funds, to park money in treasuries when the entire stock market is looking shaky. If there is a long-term market recovery this money will be pulled out quick, to invest in stocks that might actually offer gains instead of mere safety. We can't have it both ways - there is not enough investment money to support business recovery and government debt at the same time.


> I am also curious, if nobody wants US debt, why yields are dropping
> and are at all times lows.. Hmm.... How about: the alarmist author
> is over the top and there is a ton of appetite for US debt? who really
> cares where it is coming from, externally or internally... If the
> country can finance the stimulus, who cares how its done? Chinese
> dollar is as good as American. Also, let me remind you, that proposed
> $1 trillion in stimulus is only 7% of US GDP...

Jan 18 01:02 PM

[Periphanto:]

Hello,

Is there a website where you can monitor the flow of debt purchasing? Even better if a regular publication can be emailed as it is published? I agree with Thomas to watch these numbers carefully. I also would like to make note of watching the Iranian Bourse, does anyone know how to do such. As Iran trades energy in non US currency and without purchasing US debt with some of the proceeds, this figure is important too. If Iran were to shift 10 percent demand of energy nomally bought from a US Debt Supporting Middle Eastern Country this will also shock our Debt based monies system.

Thanks to Thomas for posting the numbers.

Jan 18 02:56 PM

[User 339974:]

Gold.... the NEXT bubble. As if we needed more.

Jan 19 12:46 AM

[Steven Hansen:]

i thought treasuries were auctioned? they are auction results are oversubscribed up to 4 times. the foreigners' bids are either not competitive - or they did not bid. you are not able to understand this from TIC data.

Jan 19 02:37 AM

[Crocodilian:]

"I have no idea how long the treasury market is going to continue to whistle past the graveyard, but it is becoming increasing clear that foreign governments may not be interested in continuing to finance US deficits"

Clearly, someone is buying Treasuries. Hand over fist, at any price. The bid to fill ratios are sky high, and they're yielding zero.

One thing to consider is that foreign governments/companies are earning far fewer dollars. OPEC earnings have collapsed with the price of oil, Chinese exports to the US have also collapsed.

Without dollar earnings, foreigners can't buy as many Treasuries . . . but this isn't "dumping". They simply have fewer dollars.

Jan 19 02:43 AM

[Lou Thomas:]

Added Short-term Treasuries More Than Replaced Reduced Long-term Treasuries.

From blogs.cfr.org/setser/ :

China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases.

Jan 19 07:43 AM

[sieraromero:]

Where do you think all of that tarp money that has no accountability is going?

Jan 19 09:25 AM

[Crocodilian:]

Another point worth considering:

for 2008, Treasuries were the best performing asset class. China is thus looking at huge investment _gains_ on their Treasury portfolio -- and losses on almost everything else.

China does not want to convert dollar earnings into Yuan-- this would push the Yuan up, and reduce China's export competitiveness. . . and so far, their Treasury purchases have arguably been their _best_ investment.

Jan 19 11:06 AM

[Whippet:]

To avoid the leverage trap on TBT, you can buy at the money (115 strike) LEAPs puts for Jan 2011 on TLT. For about $23.50, your breakeven would be at $91.50 but I would sell them long before then if you really think the Treasury bubble will burst within the next 6-12 months. I'm preferring to go long TBT and sell one-month calls on it (a few dollars out of the money) to hedge risk. The leverage trap doesn't kill you too bad with this one because its volatility is relatively low, and selling calls makes up for this.

Jan 19 02:22 PM

[Kevin Walmsley:]

I had a feeling this would be happening, but it's a difficult thesis to prove.

Consider this: spendthrift Middle Eastern governments, along with Russia and China, are accustomed to humming along on a giant sea of exports to America, and using that cash for their own spending, and to support our capital account.
Now, the prices they commanded for crude have collapsed, the Chinese exporters are getting murdered, and the flow of green is drying up. They've now turned to selling dollar-denominated instruments not because of their concerns of US creditworthiness, but because they represent the one asset they do have that can be turned into spendable cash in a big hurry.
Just my take. It would be interesting to see where, specifically, the foreign selling is coming from.

Jan 19 06:27 PM

[Kevin Walmsley:]

How does doing a call-write strategy hedge downside risk? I could see selling the in-the-money calls, especially for February or March, and getting a quick 1.5% with some downside protection. But in the event the bonds yields rise, having out-of-the-money calls short doesn't hedge your position in any way I can see.


On Jan 19 02:22 PM Whippet wrote:

> To avoid the leverage trap on TBT, you can buy at the money (115
> strike) LEAPs puts for Jan 2011 on TLT. For about $23.50, your breakeven
> would be at $91.50 but I would sell them long before then if you
> really think the Treasury bubble will burst within the next 6-12
> months. I'm preferring to go long TBT and sell one-month calls on
> it (a few dollars out of the money) to hedge risk. The leverage
> trap doesn't kill you too bad with this one because its volatility
> is relatively low, and selling calls makes up for this.

Jan 19 06:32 PM

[Investor Co...:]

I would like to know where you get your facts as I just went to the US Treasury statistics for Nov. and dont see your numbers, in fact it says we had a surplus of foreigner buying. Maybe I am looking at the wrong place as I assumed by TIC you meant all Foreign Treasury buying.

I really hope you arent just an alarmist and stating facts that arent facts but at the US Treas. site it says we have a net -7B buying, and a surplus in October.
www.ustreas.gov/tic/sn...

Please tell me where I am incorrect in viewing these numbers and what your source it, thanks.

Facts Maam, just the facts!

Jan 20 07:56 AM