Treasury Rates Up As China Sells Big - Will The Trend Continue?

Daniel R Moore profile picture
Daniel R Moore


  • According to the latest TIC data released by the US Treasury, US Treasuries owned by foreigners showed a decline of $335.8B from June through November of 2016.
  • Based on a review of the historical data dating back to 1967, there has never been selling pressure of this dollar magnitude from foreign entities in the US Treasury market.
  • From the beginning of July through November 2016, China sold $191.5B in U.S. Treasuries, which amounted to 57% of all net sales.
  • This article examines the implications for the large sell-off of Treasuries by foreign entities on the future direction of the Treasury rates.

I read an article on January 23rd, Hedge Funds Risk Treasuries Wipeout After Bearish Bets Soar, published by where analysts at JP Morgan Chase's Jay Barry says "fast money" speculative positions will be hurt badly as Treasuries (NYSEARCA:NASDAQ:TLT) (NYSEARCA:NASDAQ:SHY) (NYSEARCA:NASDAQ:IEF) (NYSEARCA:NASDAQ:IEI) (NYSEARCA:BATS:GOVT) decline in the intermediate future. The investment thesis is based on the fact that hedge fund short interest in the 5 year Treasury (NYSEARCA:NASDAQ:SHV) (NYSEARCA:NYSEARCA:TBT) is currently at a very high level and the expectation is that these bets are almost always a contrarian indicator as they eventually are overwhelmed by Institutional investors who from a dollar volume standpoint far outweigh the hedge fund positions.

The market expectation in the article is logical, and has certainly worked as a trade position virtually without fail over the past 25 years, particularly when Treasuries rise for any length of time longer than 6 months. And if you look at the chart below which shows the Treasury yield curve change over the past 6 months, you are probably tempted to agree with the viewpoint based on the retracement rally in Treasury rates that began post the Fed rate hike in mid-December of 2016.

I currently am skeptical that the move higher in Treasury rates is even close to the market top at this point in time, at least until there are clear sign the "Trump Rally" is going to collapse.

In my market analysis, late year and early 2017 portfolio re-balancing did cause an Institutional bid in the Treasury market and a retracement rally up to the week before Trump's inauguration. However, the market is stubbornly remaining in the current 2.50% range on the 10 year, and appears poised to break higher as stocks move even higher post the Trump inauguration.

I make this bold statement, in contrast to JP Morgan's

This article was written by

Daniel R Moore profile picture
Daniel Moore is the creator of, a web portal created for the purpose of tracking the status of financial markets and providing investment analysis and portfolio management insights to investors. Based on the systematic investment research, he writes about the market and publishes his views through internet market publications. He has over 25 years of management experience in corporate finance in a variety of high technology start-ups and public companies. A graduate of Duke University’s Fuqua School of Business in 1988, he has spent the last 10 years managing investment portfolios seeking high risk reward returns for fixed income investors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My bond exposure in low risk bonds is currently very short duration, but I am not short the Treasury market.

Recommended For You

Comments (21)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.