Foreigners Dump US Treasuries As They Liquidate A Record Amount Of US Stocks

Monday, December 17, 2018
By Paul Martin

by Tyler Durden
ZeroHedge.com
Mon, 12/17/2018

In his November Webcast, DoubleLine’s Jeff Gundlach warned that as a result of rising hedging costs, US Treasury bonds have become increasingly unattractive to foreign buyers. This can be seen in the chart below which shows the yield on the 10Y US TSY unhedged, and also hedged into Yen and Euros. In the latter two cases, the effectively yield plunges from over 3%, to negative as a result of the gaping rate differential between the Fed and ECB or BOJ.

This is also one of the reasons why, as the next chart from Gundlach showed, foreign holdings of US Treasurys have been declining in recent years, and dropped to just over 36% as a percentage of total holdings, the lowest in over a decade, as domestic holdings of US paper have risen to just shy of 50%, and near all time highs even as the Fed’s own holdings continue to shrink thanks to QT.

Which brings us to today’s latest monthly TIC data which showed that, as Gundlach would expect, the holdings of the two largest foreign US creditors, China and Japan, declined to new multi-year lows.

As shown in the chart below, China’s holdings of U.S. Treasuries fell to the lowest level since mid-2017 as the world’s second-largest economy sold US reserves to stabilize the yuan which has been depreciating in recent months due to the ongoing trade war.

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