China and Japan reduce US treasuries position in November

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Data from the US Treasury Department released on Wednesday showed that China and Japan, the two biggest foreign US creditors, reduced their holdings of US government debt in November when the dollar weakened against the two countries’ currencies.

Their reduced treasury position supported the notion that foreign central banks are cutting back their dollar exposure in their foreign exchange reserves.

“Reserve diversification has grabbed headlines recently with the underperformance of both the US dollar and Treasuries consistent with expectations of central banks reducing allocation to USD (US dollar),” Bank of America Merrill Lynch strategists Adarsh Sinha and Yang Chen wrote in a research note on Wednesday.

Last month, the International Monetary Fund said the dollar’s share of global currency reserves shrank in the third quarter of 2017 to 63.5 percent, its smallest since mid-2014.

China’s holdings of US Treasuries fell to 1.176 trillion US dollars in November, its lowest in four months. The largest foreign holder of US government debt owned 1.189 trillion US dollars in October, according to the Treasury’s latest capital flows data.

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Japan, the second largest holder of treasuries, scaled back its stake in US government debt for a third straight month to 1.084 trillion US dollars. This was the lowest level since 1.083 trillion US dollars in June 2013.

Overall foreign official institutions sold 6.7 billion US dollars in Treasuries in November. They have been unloading their US government debt holdings nearly every month going back to at least 2014.

Back in November, the Chinese renminbi gained 0.36 percent versus the greenback, while the Japanese yen rose by 0.97 percent against the dollar.

The dollar ended up 2017 with its worst annual performance since 2003 on expectations central banks besides the Federal Reserve are preparing to end the emergency policy measures they adopted to combat the 2008 global credit crisis and the recession that ensued.

Private overseas demand persist

While overseas central banks continued to roll back their Treasury exposure, private offshore investors have shown steady appetite for US stocks and corporate bonds amid an improving global economy.

Net overseas purchase of domestic equities totaled 12.67 billion US dollars in November, marginally higher than 12.31 billion US dollars the month before.

Total net purchase of corporate bonds grew to 28.7 billion US dollars, the most in at least January 2014.

Overall offshore investors amassed 33.8 billion US dollars in US securities November after buying 152.9 billion US dollars the month before.

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Source(s): Reuters