Watch What They Do, Not What They Say . . . The Chinese Are Selling Treasuries

Conclusion: The Chinese say U.S. Treasuries are important and a long term holding, but they are consistent net sellers.  This will be negative for the price of Treasuries if the trend is sustained.

 

In May, total foreign holding of U.S. Treasury debt increased slightly by $5.8 billion to $3.96 trillion.  The most noteworthy change was in Chinese holdings of Treasury debt.  In May, China’s holdings fell by $32.5 billion to $867.7 billion, which was a 3.6% drop month-over-month.  Japan, the second largest holders of U.S. treasuries, also dropped their exposure month-over-month.

 

Interestingly, since August 2009, foreign holdings of U.S. Treasuries have increased from $3.5 trillion to $3.9 trillion, which is growth of 11.4%.  In the same period, Chinese holdings of U.S. Treasuries have declined from $936.5 billion to $867.7 billion, or 7.7%.

 

It is always interesting what the Chinese say.

 

On March 13, 2009, Chinese Premier Wen Jiabao said: “We lent such a huge fund (sic) to the United States and of course we’re concerned about the security of our assets and, to speak truthfully, I am a little bit worried.”

 

And more recently the Chinese statement on the State Administration of Foreign Exchange website stated: “US bonds constitute “a very important market for China” and “any increase or decrease in our holdings of US Treasuries is a normal investment operation”.

 

So, recently the Chinese have been both defending Treasuries, and selling them. 

 

As Keith noted in the Early Look today:

 

“This morning, on the heels of a very disappointing earnings report out of one of America’s largest growth engines (Google), yields on 2-year US Treasuries are trading down to 0.58%. The inverse of this yield equates to the highest prices for short term US Treasury Debt EVER.

 

Ever, as we like to say at Hedgeye, is a very long time. Particularly when considering bubbles and the tail risks they incubate, it’s critical to never accept ever as forever.”

 

The fact is, short term Treasuries are priced to perfection.  As such, any incremental change in demand, will have a meaningful impact on price and yield.

 

So, as you think about the next move in Treasuries and what the largest holder is doing, watch what China does and not what they say.  The chart below outlines what they’ve been doing.  And the trend is negative for the price of Treasuries.

 

Daryl G. Jones

Managing Director

 

Watch What They Do, Not What They Say . . . The Chinese Are Selling Treasuries - 1


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more