China, Japan Boost U.S. Bond Buying to Record Highs

The Wall Street Journal ^ | Jan 16, 2014 | Min Zeng, Eric Morath

[1rudeboy]

Demand Should Contain Pace of Rise in Bond Yields, Keeping U.S. Borrowing Costs in Check

China and Japan boosted their holdings of Treasury bonds to a record high in November, a sign two of the biggest foreign investors in the U.S. government debt market haven’t fretted about the rise in long-term interest rates.

The activities of foreign investors are highly scrutinized at a time when Treasury yields have climbed over the past year and bond prices have fallen on the prospect that the Federal Reserve would wind down its bond buying this year. Analysts said steady demand from foreign investors would help contain the pace of rise in bond yields, keeping long-term borrowing costs for U.S. consumers and businesses in check.

China added $12.2 billion in Treasury debt in November to $1.3167 trillion, according to the latest monthly capital flows release from the Treasury Department. It surpassed the previous peak of $1.3149 trillion set in July 2011, according to analysts.

Japan increased its holdings by $12 billion in November to $1.1864 billion. The Fed currently owns more than $2 trillion Treasury debt, bigger than any other investors in the $11.8 trillion Treasury bond market.

“While foreigners won’t be the sole source of buying when the Fed reduces its purchases, foreign demand should prevent U.S. rates from rising too quickly,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $11 billion in fixed-income assets.

A portion of Thursday’s Treasury International Capital report was released early.

“Due to an error, limited amounts of TIC data were posted on the Treasury website ahead of the official release,” Treasury said in a statement. “As soon as the error was discovered the data was removed.”

Despite the glitch, the release helped boost Treasury bond prices Thursday.

[SunkenCiv]

Thanks 1rudeboy.

[mbj]

Or air routes and sea control, around & over them...?

If the USSR had been able to place permanent missiles just off the U.S.A coastline, we would have been more uncomfortable.

Besides resources, simple physical geographical control may also be important.

[mdmathis6]

Japan and China are threatening war with each other. With each country stepping up their buying of US bonds, they are each hoping that the US will continue to think of each them “fondly” and will chose their side as in the case of Japan or will stay neutral as in the case of China.

Just my opinion...

[ckilmer]

In November the Chicoms said they would not be net buyers anymore. They lied.

They are the other half of this codependent debt relationship.
............
The Chinese — before that announcement — had not been net buyers of US bonds for almost two years.

What this Chinese purchase means is that a profound shift of sentiment about the future of the USA has crossed the Pacific. Basically the Chinese have figured out what the world’s greatest currency manipulator, George Soros has figured out. Soros hates gold and loves the US economy. The US economy is picking up steam, the US federal and trade deficits are shrinking, oil output is increasing, the US economy is now much stronger than Europe and Japan. Federal reserve is tapering. All that means that the next secular trend for the dollar is UP.

That means that all dollar denominated assets rise in value. The Chinese and the Japanese each figure that buying US treasuries is now the safest bet around to pad their reserves

[1010RD]

Perhaps their is a counterfactual you've not considered? They're so dependent on America's economy keeping them in power that it's worth helping the game along, at least until the music stops.

Have you listened to this?:

It's really horrendous because the true debts of the country total about $205 trillion. The official debt that's being reported is only about $12 trillion--it's in the hands of the public, the debt in the hands of the public. So we're missing the vast majority of the obligations. And this $205 trillion 'fiscal gap', which is what economists refer to this as, which is all the liabilities to paying my mom's Social Security benefits, your grandmother's Social Security benefits, etc., all the Medicare, Medicaid, other spending obligations--defense spending, paying for the President's lunch--those are all obligations. They are going to have to be paid. And then if we net out all the future taxes that are going to be coming in as projected, in both cases by the Congressional Budget Office (CBO), when you see in present value, the value in the present of this net obligation being $205 trillion. So we are in terrible shape. Our GDP (Gross Domestic Product), the national output that we produce, is about $17 trillion--we are talking about $205 trillion, which is many times a single year's GDP. We would have to raise taxes by close to 60% immediately and permanently, every single Federal tax, to come up with $205 trillion in present value. So the country really is bankrupt and nobody sees it because of the bookkeeping.

[faithhopecharity]

Except for a handful of sectors or localities I must disagree with the idea that the USA economy is recovering. That’s just not correct I wish it was. About all we have us faked lies for government economics data While that same govt is doing everything imaginable to plunge the economy deeper and deeper into depression.

[ckilmer]

Except for a handful of sectors or localities
.........
Its those sectors and localities that make all the difference...at least as far as finances are concerned.

[ckilmer]

It’s really horrendous because the true debts of the country total about $205 trillion.
...........
well my understanding is as imperfect as the next persons. But you have to figure that when the biggest vampire mercenary in the world George Soros has confidence in the US economy but is pessimistic about China...then what the hey—chinese investments in US bonds make more sense.
....................
George Soros On The World’s Shifting Challenges
In contrast to Europe, the United States is emerging as the developed world’s strongest economy. Shale energy has given the US an important competitive advantage in manufacturing in general and in petrochemicals in particular. The banking and household sectors have made some progress in deleveraging. Quantitative easing has boosted asset values. And the housing market has improved, with construction lowering unemployment. The fiscal drag exerted by sequestration is also about to expire.

The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam.

That model depended on financial repression of the household sector, in order to drive the growth of exports and investments. As a result, the household sector has now shrunk to 35% of GDP, and its forced savings are no longer sufficient to finance the current growth model. This has led to an exponential rise in the use of various forms of debt financing.

http://www.zerohedge.com/news/2014-01-02/george-soros-worlds-shifting-challenges

[VideoDoctor]

Could it be that the Fed is cutting back, by 10 billion per month, what they were buying every month in Bonds and T-bills and the difference is going to be made up by China and Japan? Fed has been buying approx 90 billion PER MONTH for the past 2 years

The house of cards must stay propped up until Janet Yellon can be blamed for the oncoming train wreck.

[PeterPrinciple]

That means that all dollar denominated assets rise in value. The Chinese and the Japanese each figure that buying US treasuries is now the safest bet around to pad their reserves

---

But the counter to that is if you buy bonds and the interest rates go up, you bonds are worth less. on the other hand if they are short term bonds which is most likely you reinvest when int rates are higher.

Nothing is ever certain with climate or people or finance..........but place your bet.

[ckilmer]

on the other hand if they are short term bonds which is most likely you reinvest when int rates are higher.
..........
I think these are what they are buying.

[Pearls Before Swine]

As someone worried about the stability of the US financial system, all I can say is, “Bwahahahaha.”