Are Foreign Holders Finally Bailing Out of the Incredibly Ballooning US National Debt?

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by Wolf Richter, Wolf Street:

China and Brazil shed large portions of their holdings, but the top financial centers loaded up.

The total amount of Treasury securities outstanding has reached $33.89 trillion and is going to hit $34 trillion shortly. Everyone of these securities must be sold to someone, and foreign holders play a huge but declining role:

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Foreign holders in aggregate have kept their holdings of US Treasury securities roughly stable for the past two years. In October, their holdings dipped to $7.56 trillion, up about 6% from a year ago, but the same as in June 2021, according to TIC data from the Treasury Department released Tuesday afternoon (red line in the chart below)

  • The top six financial centers (London, Belgium, Luxembourg, Switzerland, Cayman Islands, Ireland) decreased their holdings to $2.22 trillion, down from the record in August (blue line):
  • Japan, #1 single US creditor, increased its holdings in October to $1.10 trillion (green), but that’s down from the $1.3 trillion range in 2021.
  • China and Hong Kong combined further reduced their holdings to $969 billion (purple).

Foreign holders have not kept up buying the the incredibly ballooning US government debt, and as a result, the share of their holdings has plunged to a share of 22.4%, from the range of around 33% in 2015. In other words, the US debt financing has become less dependent on foreign holders:

The six largest financial centers – the UK (actually the City of London), Belgium, Luxembourg, Switzerland, Cayman Islands, and Ireland – reduced their holdings a little in October, after the record in August, to $2.22 trillion

These countries specialize in handling and often obscuring the financial holdings of global companies, individuals, and governments. Ireland is a favorite for US companies to store their profits:

  • UK: $693 billion
  • Luxembourg: $345 billion
  • Cayman Islands: $324 billion
  • Ireland: $299 billion
  • Belgium (home of Euroclear): $285 billion
  • Switzerland: $276 billion.

Japan’s holdings, after dropping sharply last year, have zigzagged up again this year, and in October ticked up to $1.1 trillion, up by 3.2% from a year ago.

Late last year, the Ministry of Finance sold some US-dollar assets, presumably Treasury securities, or let T-bills mature without replacement, to get the dollar-cash, and then blew $68 billion in dollar-cash to buy yen in the foreign exchange market to prop up the yen after it had plunged to ¥150 to the dollar by October 2022.

 

China and Hong Kong combined have been unloading Treasuries for years. In October, their combined holdings of Treasuries fell to $969 billion, the lowest in the data going back to 2011 (red in the chart below), down by 8.9% from a year ago.

During the capital-flight panic in 2016, China sold Treasury securities to prop up the RMB. It then increased its holdings again. But since Covid, the combined holdings have plunged by 29%.

Other top foreign holders:

Canada’s holdings ticked up to $281 billion, up by 29% year-over-year, after having hit a record in August:

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