The Treasury International Capital (TIC) report Friday morning showed that foreigners sold a record amount of U.S. Treasuries in April, and by a large margin:
This seems more likely an outlier than the beginning of a trend, but the picture gets more interesting if we isolate Japan. Not only was Japan the biggest seller in April at $11.4 billion, but its Treasury holdings peaked last October:
Japan's U.S. agency bond holdings are also declining. The country breakdown for agencies isn't available yet for April, but Japan held $224 billion in agencies as of the end of March, down from $253 billion last October. Adding up the available data for Treasuries and agencies, Japan's official and private holdings of U.S. government debt fell by $61 billion after the end of October.
These bond sales probably began to reverse after Japan's stock market peaked in May. After all, the sales picked up at about the same time that soon-to-be Prime Minister Shinzo Abe was first articulating his reflation strategy and the Japanese stock market was going vertical.
Then again, there may also be more to it than that. It stands to reason that Japan's worsening trade fundamentals (shown below) are having some effect on its ability to buy global bonds. And this is important because Japan remains a big market for U.S. bond sales, second only to China with about $1.3 trillion in Treasury and agency bond holdings even after the recent declines.
It'll be worth watching upcoming TIC reports to see how Japan's Abenomics effect plays out, and also if April's $70 billion drop in foreign holdings of U.S. Treasuries is reversed. The May TIC report is scheduled for July 16, but we'll need to see the June data also to know if recent stock market volatility has pushed foreign investors back into Treasuries.