China and Japan are buying Treasuries again

Both China and Japan added a substantial amount of US Treasuries in September, according to the latest TIC-data released by the Federal Reserve on Monday. The total foreign holdings of US debt increased as well in September, ending a five-month selling spree of US debt. Compared to August, foreign countries added a net amount of $64,1 billion in US Treasuries to their reserves. The two largest buyers were China and Japan with net purchases of $25,7 and $29 billion respectively.

The following graph shows all changes in foreign holdings of US debt in September, compared to the month before.

Which countries added US Treasuries in the month of September?

Which countries added US Treasuries in the month of September?

Foreign countries hold on to their US Treasuries

If we take a look at US bond purchases in the first nine months of 2013, we see a similar pattern arise. This year, China added $79,6 billion of Treasuries to their reserves. Japan’s holdings of US Treasuries increased by $74,2 billion in 2013. Other important buyers of US debt were Caribbean banks (+$29,1 billion) and the UK (+$19 billion). Countries like Singapore, Thailand and Russia each sold a substantial amount of US Treasuries in 2013. Their holdings decreased by more than $20 billion. The oil exporting countries – fourth largest foreign holder of US Treasuries – were also selling some of their dollar reserves. Compared to the first of January they sold $15,9 billion of dollar denominated government debt.

Which countries bought US Treasuries in 2013?

Which countries bought US Treasuries in 2013?

Federal Reserve

The central bank of the United States – the Federal Reserve – is buying US Treasuries as well. With quantitative easing they are taking billions of dollars of US Treasuries of the market. In September alone, the central bank bought almost $40 billion of long-term US government debt. In the first nine months of 2013, the Federal Reserve added approximately $360 billion of US government debt to their ever expanding balance sheet.

If we compare the purchases of Treasuries by the Federal Reserve to the purchases done by foreign countries, it becomes clear how the United States is cheating on the rest of the world. It should be clear that they will never repay their debts to foreign countries with the purchasing power of today’s dollars. Countries like China and Russia are fully aware of this and started expanding their gold reserves.

The Federal Reserve bought more Treasuries than any foreign country in September

The Federal Reserve bought more Treasuries than any foreign country in September

So far this year, the Federal Reserve has bought a lot more US Treasuries than any foreign country

So far this year, the Federal Reserve has bought a lot more US Treasuries than any foreign country

Debt financing of the United States

The last graph we want to share with our audience puts the foreign holdings of US debt together with all the Federal Reserve holdings. This graph goes back to 2003 and covers more than ten years of US debt accumulation done by both foreigners and the Federal Reserve. Excluded from this graph is the domestic private holding of US Treasuries, which is about $9 trillion in total at the moment. We can get to this number by simply deducting the foreign holdings and the Federal Reserve purchases of US Treasuries from the official US debt, which is more than $17 trillion at the moment.

US government debt held by the Federal Reserve and foreign countries

US government debt held by the Federal Reserve and foreign countries

Frank Knopers

Frank Knopers studeerde bedrijfswetenschappen aan de Universiteit Twente in Enschede en behaalde een Master in Financial Management met een onderzoek naar de effectiviteit van waardebeleggen (value investing) in Nederland. Sinds het uitbreken van de financiële crisis is Frank zich gaan verdiepen in de werking van het geldsysteem.