Foreign Central Banks Jettisoning US Debt At Alarming Pace; Buying Gold

Continuing a trend that started last year, central banks around the world are dumping US debt at a record pace.

Central banks sold off a net $17 billion in US Treasury bonds in March. Sales set a record in January, hitting $57 billion. China, Russia, and Brazil led the way, each dumping at least $1 billion in US debt in March alone.

So far in 2016, global central banks have jettisoned $123 billion in US debt. Last year, they sold off $226 billion. According to the Treasury Department, central banks are selling US Treasuries at a pace not seen since at least 1978.

Once the biggest buyer of US debt, China is now selling Treasuries at what CNN calls an alarming rate:

Between December and February, China’s central bank sold off an alarming $236 billion to help support its currency, which China is slowly letting become more controlled by markets and less by the government. In March, China sold $3.5 billion in US Treasury bonds, Treasury data shows.”

Head of international fixed income at Federated Investors Ihab Salib said fear and economic instability is driving the selloff:

There’s still this fear of ‘everything is going to fall apart.’”

CNN Money said the sell-off of Treasuries may be an effort to “prop up their currencies:”

By selling US debt, central banks can get hard cash to buy up their local currency and prevent it from losing too much value.”

But many of these central banks aren’t just purchasing local currency. They are buying gold.

As we reported yesterday, central banks have gone on a gold-buying spree, with China and Russia leading the pack. According to the World Gold Council, Russia increased its gold reserves by 45.8 tons in the first quarter of this year. That was 52% higher than the same period in 2015. China purchased 35.1 tons between January-March, adding to the 103.9 tons it bought through the second half of last year.

Notice these are two of the countries dumping US debt the fastest. The strategy seems pretty clear – sell US treasuries and buy gold.