China dumps US debt at record pace

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From SCMP:

China’s holdings of US Treasuries declined to the lowest in more than six years as the world’s second-largest economy uses it currency reserves to support the yuan. Japan overtook China as America’s top foreign creditor, as its holdings edged down at a slower pace.

A monthly Treasury department report showed China held US$1.12 trillion in US government bonds, notes and bills in October, down $41.3 billion from the prior month. That’s the lowest since July 2010. The portfolio of Japan decreased for third month, falling by $4.5 billion to $1.13 trillion, according to the data.

China’s foreign reserves, the world’s largest stockpile, declined for the fifth straight month in November to $3.05 billion — the lowest since March 2011 — amid support for the currency.

The report, which also contains data on international capital flows, showed net foreign buying of long-term securities totaling $9.4 billion in October.

International investors sold $63.5 billion in US Treasuries in October, while foreigners purchased a net $4.5 billion of corporate debt, $20.5 billion in equities, and $32.4 billion in agency debt, according to the report.

If you include China proxies, it’s worse:

China and Belgium comibned

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Sure is a feedback loop: US hikes > USD up > CNY dumps > China sells US debt > US hikes…

If I were China I would be looking to pop the commodity futures bubble as soon as possible. That will slow the Fed as global inflation eases and give China breathing space to devalue at a manageable pace.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.