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China & Russia Sell U.S. Treasuries

Jim Sinclair’s Commentary

This is why QE must go to infinity.

When your major buyers turn sellers, the Federal Reserve Bank becomes the only buyer for your debt.

China & Russia Sell U.S. Treasuries
By Michael Mackenzie in New York
Last updated: February 15, 2011

China has sold billions of dollars in US Treasury bills for the second month in a row, even as strong buying from other foreign investors countered Beijing’s move to reduce its holdings.

A Treasury report on Tuesday showed net foreign demand for long-term US securities, including bonds and equities, was $41.8bn in December, versus $64.5bn in November. Monthly net Treasury International Capital flows rose to $48.2bn in December, up from $35.6bn in November and $17.2bn in October. The rise was driven by private investors, while official accounts, or foreign central banks, sold US assets for the second successive month.

Foreign private investor demand for US long-dated government debt remained solid in December and US Treasuries with maturities of more than a year recorded inflows of $55bn. But, short-term bills suffered a $37bn fall, after November’s $32bn drop.

Alan Ruskin, strategist at Deutsche Bank, said the mixed flows reflected foreign interest in longer-term Treasuries as yields rose. China, for example, bought $5bn of bonds and notes in December, but sold $9bn of Treasury bills. “The negative take for the bond market is that China reduced its overall Treasury holdings, but they have increased their exposure to US interest rates by buying longer-term Treasuries,” said David Ader, strategist at CRT Capital. “It is an important distinction.”

Russia also pared its Treasury holdings for the second month, down to $106bn from $122bn.

But the UK continued to drive demand for Treasuries with a rise to $541bn, up from $512bn in November and $208bn in January last year. That increase, according to analysts, reflected the UK’s status as a financial centre where Treasuries are bought by investors who are not domiciled in the country...


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China & Russia Sell U.S. Treasuries
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