China Starts Dumping U.S. Government Debt

Once the Biggest Buyer, 

China Starts Dumping U.S. Government Debt

Shift in Treasury holdings is latest symptom of emerging-market slowdown hitting global economy

By MIN ZENG And  LINGLING WEI

Oct. 7, 2015 1:34 a.m. ET

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt.

Few analysts expect much higher yields in the Treasury market as a result. Foreign private purchases of U.S. debt have increased amid pessimism about the world economic outlook. U.S. firms and financial institutions continue to buy Treasurys, as do some foreign central banks.

Still, many investors say the reversal in central-bank Treasury purchases stands to increase price swings. It could also pave the way for higher yields when the global economy is on firmer footing, they say.

Central-bank purchases over the past decade are widely perceived to have “helped depress the long-term Treasury bond yields,’’ said Stephen Jen, managing partner at SLJ Macro Partners LLP and a former economist at the International Monetary Fund. “Now, we have sort of a reverse situation.”

Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, according to Torsten Slok, chief international economist at Deutsche Bank Securities, the biggest decline since data started in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.

In the past decade, large trade surpluses or commodity revenues permitted many emerging-market countries to accumulate large foreign-exchange reserves. Many purchased U.S. debt because the Treasury market is the most liquid and the U.S. dollar is the world’s reserve currency.

Foreign official purchases rose as high as $230 billion in the year ended in January 2013, the Deutsche Bank data show.

But as global economic growth weakened, commodity prices slumped and the dollar rose in anticipation of expected Federal Reserve interest-rate increases, capital flowed out of emerging economies, forcing some central banks to raise cash to buy their local currencies.

In recent months, China’s central bank in particular has stepped up its selling of Treasurys.

The People’s Bank of China surprised investors by devaluing the yuan on Aug. 11. The heavy selloff that followed—triggered by concerns that Beijing would permit more weakening of the yuan to help spur growth—caught officials at the central bank somewhat off guard, according to the people.

To contain the selloff, the PBOC has been buying yuan and selling dollars to prevent the yuan from weakening beyond around 6.40 per dollar.

Internal estimates at the PBOC show that it spent between $120 billion and $130 billion in August alone in bolstering the yuan’s value, according to people close to the central bank.

China isn’t alone. Russia’s holdings of all U.S. Treasury debt fell by $32.8 billion in the year ended in July, according to the latest data available from the U.S. Treasury. Taiwan’s holdings dropped by $6.8 billion. Norway, a developed nation hit by the oil-price decline, reduced its Treasury holdings by $18.3 billion.

Some other central banks increased holdings. India increased its Treasury debt holdings to $116.3 billion at the end of July 2015 from $79.7 billion a year ago. The Federal Reserve held $2.45 trillion of Treasury debt at the end of September and isn’t expected to sell U.S. debt soon.

Traders said China’s selling has been a factor in why 10-year Treasury yields have remained near 2% as stock and commodity markets tumbled in recent months. The yield fell as low as 1.6% before the so-called taper tantrum in mid-2013 as the Fed prepared to end monthly bond purchases.

The 10-year yield settled at 2.033% Tuesday, compared with 2.173% at the end of 2014 and 3.03% at the end of 2013. Yields fall as prices rise.

Some analysts have warned for years that persistent fiscal deficits made the U.S. Treasury market vulnerable to a reduction in foreign purchases. But many investors say they believe longtime holders such as China won’t sell bonds in a way that threatens to disrupt the market.

“I can’t rule out China being a big risk to the bond market but it’s not something that is keeping me awake at night,’’ said James Sarni, senior managing partner at Payden & Rygel in Los Angeles, which manages $95 billion. “While they may decide to sell more Treasury bonds, the transactions are likely to be done in a prudent way.”

Indeed, bond yields have remained persistently low for the past decade and have fallen sharply since the 2008 crisis, thanks in part to strong official and private demand for debt deemed safe.

In the 12 months to July, foreign private investors bought long-term Treasury debt at the fastest pace in more than three years.

U.S. bond mutual funds and exchange-traded funds targeting U.S. government debt have attracted $20.4 billion net cash this year through the end of September, poised for the biggest calendar-year inflow since 2009, according to fund tracker Lipper.

Sales by foreign central banks could accompany a further decline in bond yields, by underscoring the depth of economic problems hitting emerging regions. For over a decade before the recent slowdown, developing nations, led by China, were viewed as the engine for global economic growth.

“We have a problem of insufficient demand globally,’’ said Michael Pettis, professor of finance at Guanghua School of Management at Peking University in Beijing and the author of “The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy.”

Slack in the U.S. economy argues against a sharp rise in rates, said Prof. Pettis.

“U.S. bond yields are not going to rise significantly unless we have much stronger growth and higher inflation,” he said.

http://www.wsj.com/articles/once-the-biggest-buyer-china-starts-dumping-u-s-government-debt-1444196065

---

"中, 美 국채 팔기 시작했다"<WSJ>

윤영숙 기자  |  ysyoon@yna.co.kr

폰트키우기 폰트줄이기 프린트하기 메일보내기 신고하기

승인 2015.10.08  08:58:27

트위터 페이스북 미투데이 싸이월드 공감 요즘 네이버 구글 msn

(서울=연합인포맥스) 윤영숙 기자 = 외국 중앙은행 중 미국 국채를 가장 많이 보유한 중국이 미 국채를 팔기 시작했다고 월스트리트저널(WSJ)이 7일(현지시간) 보도했다. 

도이체방크의 토스튼 슬록의 자료에 따르면 지난 6월 말로 끝난 12개월동안 외국 중앙은행들은 만기 1년 이상의 미 국채를 1천230억달러어치 순매도했다. 이는 1978년 해당 자료가 발표되기 시작한 이후 최대 규모다. 

그 직전해 외국 중앙은행들이 270억달러어치의 미 국채를 사들인 것을 감안하면 1년 사이 순매수에서 순매도로 방향을 전환한 것이다. 

국제통화기금(IMF) 이코노미스트를 지낸 SLJ 매크로 파트너스의 스티븐 옌 매니징 파트너는 지난 10년간 글로벌 중앙은행들의 미 국채 매입은 "장기 국채 금리를 억누르는 데 일조했다"며 그러나 "이제는 반대의 상황이 됐다"고 말했다. 

지난 10년간 많은 신흥국은 대규모 무역 흑자와 원자재 투자 수익을 등에 업고, 외환보유액을 대거 축적해 이를 미 국채 매입 자금으로 활용해왔다. 미 국채는 유동성이 높고, 미 달러화가 기축통화라는 점이 투자 매력으로 부각됐기 때문이다. 

도이체방크에 따르면 2013년 1월로 끝난 지난 1년간 외국 중앙은행들의 국채 매입은 최대 2천300억달러까지 증가했다.

그러나 글로벌 경기가 둔화하고, 원자재 가격이 폭락하면서 사정은 달라졌다. 

특히 미국 연방준비제도(Fed)의 금리 인상 기대로 달러화가 오르고, 신흥국에서 자금 유출이 강화되면서 일부 중앙은행들은 현지 통화를 매입하기 위해 현금을 보유할 필요성이 커졌다. 

대표적인 경우가 중국이다. 중국 인민은행은 지난 몇 달간 미 국채를 팔기 시작했다. 

인민은행은 지난 8월11일 위안화 환율 시스템을 조정한 여파로 자본유출이 강화되면서 이를 억제하기 위해 시장에 개입한 것으로 알려졌다. 

중국의 8~9월 외환보유액도 1천300억달러 이상이 줄어 당국이 지속적으로 외환시장에 개입했음을 시사했다. 

전문가들은 중국이 외환보유액으로 보유한 미 국채를 매도해 이를 외환시장 방어에 사용하고 있다고 추정했다. 

인민은행에 가까운 소식통은 인민은행 내부 추정치에 따르면 8월 위안화 가치를 떠받치기 위해 인민은행이 사용한 자금은 1천200억달러~1천300억달러에 달한다고 말했다. 

러시아 역시 미국 국채를 팔고 있다. 

러시아는 7월 말로 끝난 지난 1년간 328억달러의 미 국채를 팔았다. 대만 역시 68억달러를 팔았고, 유가 하락에 타격을 입은 노르웨이도 183억달러어치의 미 국채를 팔았다. 

다만, 인도는 7월 말 기준 미 국채를 1천163억달러를 보유해 1년 전의 797억달러에서 국채 보유량을 300억달러 이상 늘린 것으로 나타났다. 

중국을 비롯한 외국 중앙은행들의 미 국채 매도에도 미 국채 가격이 폭락해 국채 금리가 급등할 가능성은 낮은 것으로 전망됐다. 

페이든앤리겔의 제임시 사르니 선임 매니징 파트너는 "중국이 채권시장에 큰 위험이 될 가능성을 배제하지 않는다"면서도 "밤에 잠을 자지 않고 있어야 할 문제는 아니다"라고 말했다. 

그는 "중국이 더 많은 국채를 팔 수도 있겠지만, 거래는 신중한 방식으로 이뤄질 가능성이 있다"고 전망했다. 

여기에 외국계 민간 투자자들은 오히려 미 국채를 적극적으로 사들이고 있어 국채 금리가 당분간 낮은 수준에서 유지될 것으로 예상된다. 

역내 미 국채 투자도 여전히 강한 것으로 나타났다. 펀드 추적업체 립퍼에 따르면 미 국채에 투자하는 미국 채권형 뮤추얼펀드와 상장지수펀드(ETF)는 올해 들어 지난 9월 말까지 204억달러를 끌어모았다. 이는 2009년 이래 최대 유입 규모다. 

베이징대학교 광화경영대학원의 마이클 페티스 교수는 "전 세계적으로 수요가 충분하지 않다는 문제가 있다"며 "다만 미 국채금리는 미국 경제가 지금보다 훨씬 더 강한 성장과 더 높은 인플레이션을 보여주지 않는 한 크게 오르지는 않을 것"이라고 전망했다.

http://news.einfomax.co.kr/news/articleView.html?idxno=189225

---

OCT 6, 2013 @ 03:06 PM 36,101 VIEWS

What If China Stops Buying U.S. Government Debt?

Just about everyone worries that Beijing, perturbed by the ongoing squabble in Washington, will sour on Treasuries.  This concern is embedded in the provocative title of Eamonn Fingleton’s recent Forbes posting: “If Republicans Want to Shut Down Washington, They’ll Have to Ask China’s Permission First.”

The Republicans in fact did not seek Beijing’s approval, and neither did Democrats.  Are both sides making a mistake by not taking into account China’s “feelings,” as the Communist Party demands everyone do?    

It’s clear Chinese officials are watching closely.  “The United States, the world’s sole superpower, has engaged in irresponsible spending for years,” observed Xinhua News Agency in an editorial on Wednesday.  “With no political unity to redress its policy mistake, a dysfunctional Washington is now overspending the confidence in its leadership.”

The official organ’s warning, entitled “On Guard Against Spillover of Irresponsible U.S. Politics,” hints that Beijing leaders are thinking of further diversifying their portfolios away from dollar-denominated debt.  If the Chinese don’t continue buying Treasury securities, the Federal government will have to find others to take up the slack.  Many, including the respected Congressional Research Service, argue that Treasury may then have to pay substantially more for borrowed funds and higher interests rates could result in lower long-term growth.

China is by far the largest foreign holder of U.S. Treasury securities.  At the end of July, the last month for which official statistics are available, it had stockpiled $1.2773 trillion in Treasuries.  The country is way in front of second-place Japan, whose portfolio was $141.9 billion smaller.  If you add in the Treasuries of autonomous Hong Kong, the hoard of the People’s Republic increases by $120.0 billion. 

The direction is unmistakable.  China, excluding Hong Kong, ended last century in December 2000 with just $60.3 billion in Treasury securities.

So, yes, it does look like Obama, Boehner, Pelosi, and Reid should have been on the line to Beijing before beginning their most recent spat.  Yet historical data reveal a surprising trend.  In July 2011, China set a record with its $1.3149 trillion of Treasuries.   Then, over the course of the last two years, Beijing offloaded $37.6 billion of these instruments. 

In short, the Chinese have not in fact been funding the Federal deficit since the middle of 2011.  And during that period, the Federal government was able to continue operating, global markets did not panic, and rates on Treasuries declined.  Significantly, China decreased its holdings at a time when the U.S. Treasury increased its borrowing from abroad, by $1.749 trillion in 2011 and by $821 billion last year. 

All this is not to say the U.S. should run budget deficits—it definitely should not—but it does tell us that we do not need the Chinese to do so. 

Of course, Washington’s statistics cannot capture China’s purchases of Treasuries through nominees.  From time to time, there is unusual activity in foreign debt markets, notably London, indicating the Chinese are trying to hide purchases and sales.  There is, however, nothing to suggest that, over time, their transactions behind the screen do not track the ones out in the open.

In any event, Beijing’s surreptitious transactions are not large enough to substantially disrupt or influence global markets.  Even if all of China’s purchases of Treasuries over the last two years had been through nominees, it does not mean we relied on the Chinese.  After all, the combined value of U.S. private and public debt securities dwarfs Beijing’s holdings.  In 2011, the last year for which U.S. Treasury data is available, U.S. debt securities amounted to a staggering $33.7 trillion, 34.2% of the world’s total.  In comparison, China’s foreign exchange reserves, which are thought to be mostly in Treasuries, totaled only $3.50 trillion at the end of this June.

And now we know what happens if China stops buying Treasuries.  Nothing will happen.  It has, in fact, already stopped adding to its stockpile.

But what happens if the Chinese really get mean?  Every so often, Beijing’s civilian officials—and sometimes generals and admirals—publicly talk about dumping Treasuries to hurt the United States.  These words, unlikely to be off-the-range comments in the Communist Party’s tightly run system, are meant to intimidate Washington at particularly sensitive times.  China, however, has never implemented the “nuclear option,” the phrase heard in Beijing circles as early as August 2007. 

Why hasn’t China “nuked” us?  If Beijing sold Treasury securities in massive quantities, it would cause a panic, but the world’s deep markets would quickly adjust.  The Chinese, we should remember, would get back dollars.  Because they are doing this to undermine America, they would have to either buy hard assets or convert the proceeds into other currencies.  As a practical matter, China’s deficit-plagued central government needs the income so most of the funds would go into interest-bearing instruments denominated in euros, pounds, francs, and yen.  

The euro, pound, franc, and yen would obviously soar in value, so Brussels, London, Bern, and Tokyo would have to go out into the markets to rebalance their currencies.  The only practical way to rebalance would be to buy .  .  .  dollars. 

So why don’t the Chinese go nuclear?  They know that in a short period calm would return to the markets, America’s debt would end up held by its friends, and they would be stuck with a wide variety of assets their managers had shunned in the first place. 

http://www.forbes.com/sites/gordonchang/2013/10/06/what-if-china-stops-buying-u-s-government-debt/