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China: Lowest U.S. Treasury Holdings Since Early 2010
Chinese holdings of U.S. Treasuries continued to plunge in the month of November. There was a sharp $200B drop in the second half of last year, market participants have been waiting to see what Beijing did after the Trump election. The answer? Sell.
A Cool $66B Sale
China‘s U.S. Treasury Securities Holdings fell to $1.049 trillion in November from $1.116 trillion in October. Much of the vicious sell off in bonds through the month of November was thought to be due to the “reflationary trade” environment. Wall St.’s been pricing in a Trump administration running up deficits and more pro-growth legislation coming out of Washington.
The world’s second-largest economy uses its foreign-exchange reserves to support the yuan:
The narrative plays well in the press, but in reality a lot of the selling is pointed at the Chinese raising emergency cash. Since June of 2016, the Chinese have been aggressively selling U.S. Treasuries in order to raise cash and defend their currency, the yuan. This has been a huge catalyst for the bond sell off in Q4 2016.
Since April, the currency (yuan) has devalued by 8% through December 2016, as cash has been pouring out of the country. China has spent billions trying to prop the currency up, defend her.
Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 2pm.
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereWhere are bond yields going with risk of a euro breakup on the rise? Click here (above) for our latest report.
U.S. Treasury data show the country has dumped about $270 billion of U.S. government debt since its holdings peaked at $1.32 trillion in 2013 and is using the funds to underpin the yuan and stem capital outflows.
The question is, does it make sense for China to keep selling treasuries at such a fast level? We think not. By selling treasuries, the Chinese are only sending yields higher in the U.S. which supports a stronger Dollar, something the Chinese cannot afford. A big question for 2017 will be, do the Chinese continue selling off treasuries, or does the fear of further depleting reserves and raising the Dollar put them off. Pick up our latest report, just click on the link below.
Foreign holdings of U.S. Treasury debt totaled $5.9 trillion, a drop of $96.1 billion from the previous month. That was the lowest since 2014.
Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 2pm.
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereWhere are bond yields going with risk of a euro breakup on the rise? Click here (above) for our latest report.