China Is Again Selling US Treasuries As Foreign Central Banks Liquidate $45BN

After December’s brief dead cat bounce, in which foreign central banks bought $18.6 billion in US Treasuries, breaking a streak of 12 consecutive months of selling, in January they resumed their liquidation. According to the just released TIC data, foreign official institutions, which includes mostly central banks, but also sovereign wealth funds and various other official entities, sold another $44.9 billion in Treasuries, in line with the aggressive selling seen for most of 2016.

Curiously, the sales by foreign central banks were largely offset by purchases by private holders, mostly corporate institutions and foreign retail investors, who bought $37.9 billion in the month, the most since last March when they acquired $41 billion. Combining the two, foreigners sold a total of $7 billion in TSYs in January.

Additionally, on an LTM basis, due to greater sales last January when they sold $57.2 billion or $12.3 billion than in the most recent period, the 12 month total rose from $338 billion in liquidations to $325.7 billion, the highest since last May.

Across all US securities, foreigners ended up purchasing a total of $15.1 billion in US assets, consisting of equity and agency purchases of $15.1 billion and $12.5 billion, offset by sales of TSYs and Corporate bonds of $7 billion and $5.9 billion respectively.

Next, looking at two distinct holders of US paper, in January the Chinese selling resumed, and after Beijing bought $9 billion in US paper in December, in January it proceeded to sell most of that total, reducing its holdings of Treasurys from $1.058 trillion to $1.051 trillion, which brought it to $51 billion below the largest US foreign creditor Japan, who in January held $1.103 trillion.

Finally, in a surprising twist, while Saudi Arabia one year ago threatened to liquidate its US Treasury holdings, it has been doing just the opposite, and as shown in the chart below, in January it bought another $10 billion, taking its total to $112.3 billion, the highest total since April 2016. It appears that, if only for the time being, Petrodollar recycling is back on line.