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US treasuries dumped by China to the tune of $180 billion
Benchmark 10-year yields fell 0.6 percentage point even though the largest foreign holder of U.S. debt pared its stake between March 2014 and May of this year, based on the most recent data available from the Treasury Department. That’s not the doomsday scenario portrayed by those who said the size of the holdings -- which peaked at $1.65 trillion in 2014 -- would leave the U.S. vulnerable to China’s whims.
Instead, other sources of demand are filling the void. Regulations designed to prevent another financial crisis have caused banks and similar firms to stockpile highly rated assets. Also, mutual funds have been scooping up government debt, flush with cash from savers who are wary of stocks and want an alternative to bank deposits that pay almost nothing. It all adds up to a market in fine fettle as the Federal Reserve moves closer to raising interest rates as soon as next month.
“China may be stepping away, but there is such a deep and broad buyer base for Treasuries, particularly when you have times of uncertainty,” Brandon Swensen, the co-head of U.S. fixed-income at RBC Global Asset Management, which oversees $35 billion, said from Minneapolis.
America has relied on foreign buyers as the Treasury market swelled to $12.7 trillion in order to finance stimulus that helped pull the economy out of recession and bail out the banking system. Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show.
China was a particularly voracious participant, boosting its holdings from less than $350 billion as its economy boomed and the nation bought dollars to keep the yuan from soaring.
Now, the Asian nation is stepping back as it raises money to support flagging growth and a crumbling stock market, and allows its currency to trade more freely. The latest update of Treasury data and estimates by strategists suggest that China controls $1.47 trillion of Treasuries. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.
China’s holdings have fallen in two ways. First, active trades show $19.4 billion of net note and bond sales this year through May. Second, holdings data indicate China has opted not to reinvest the full proceeds of maturing securities back into Treasuries. Those measures combined to lower the country’s stake in the debt by about $180 billion from its apex.
The People’s Bank of China didn’t reply to faxed questions on its U.S. Treasury holdings.
China is not alone in trimming holdings. Japanese investors sold a net 1.17 trillion yen ($9.4 billion) of long-term Treasuries in June, the most in two years, according todata from Japan’s Ministry of Finance and central bank reported Monday.
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Warren Buffett's highly anticipated annual letter toBerkshire Hathawayshareholders released on Saturday did not disappoint this year with a little something for all fans of the Oracle of Omaha, from professional value investors to the casual admirers of his wit and wisdom.Most newsworthy in this year's edition, the 87-year old billionairepointed out that Berkshire Hathaway now has a $116 billion war chestto spend on a deal, but that prices were too high for him to spend any of it in a big way last year.Buffettwent on to give avaluable investing lessonthat involved quoting a Rudyard Kipling poem from the 1800s. There are plenty of quips in the letter, including a joke likening a CEO's penchant for dealmaking to the sex drive of teenagers. Here are the highlights below: The tax cut:"Berkshire's gain in net worth during 2017 was $65.3 billion, which increased the per-share book value of both our Class A and Class B stock by 23%...A large portion of our gain did not com…