China No Longer Top Holder of US Treasuries

If China is no longer the U.S. government's largest creditor who is?

US Capitol Building with cash
US Capitol Building with cash

You guessed it: The Fed.

(Against the backdrop of QE2, this probably isn't terribly surprising.)

Tyler Durden at ZeroHedge has crunched the numbers from today's release of TIC data (Treasury International Capital)—and some interesting facts have emerged.

First, the U.S. Federal Reserve holds a total of $996 Billion of U.S. Debt —versus the $907 billion in U.S. debt held by Mainland China.

(The figures cited reflect total positions held on October 31, 2010, per the TIC data.)

And when you dig down to the next level of detail, the data picture doesn't improve.

With regard to China, for example: While their total holdings of U.S.

Treasuries increased, the Chinese appear to be buying at the shorter end of the maturity curve.

Durden reports: "While total Chinese holdings increased from $883.5 billion to $906.8 billion, more than all of this increased was in Short Term Treasury purchases ($25.4 billion), and in fact China sold $2 billion in Long-Term US Bonds in October."

Durden also points out two interesting broader points.

First, the overall downward trend in the global appetite for U.S Treasuries:

"Net foreign purchases of US securities amounted to $54.7 billion, down from a revised $90 billion in September, and even more from $136.3 billion in August. Net foreign purchases, net of adjustments and US purchases of foreign securities, amounted to $7.2 billion, substantially lower than expectations of $51 billion."

(Note: Not only are net purchases declining—the figures are later being revised downward.)

And, at a more granular level of detail, the shift into shorter Treasury securities:

"Digging through the data reveals some interesting trends, namely the purchases of LT Treasurys, while still positive, plummeted from purchases of $78.3 billion and $117 billion in the prior two months… Looking at China we observe that the country actually sold off Long Term UST (while buying Short Term Bills)"

It will be interesting to see how the global debt markets process this data.


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