Is the United States bond market coming to an end? After it was reported that central banks around the world are selling U.S. government bonds at the fastest pace on record, it may mean one of the biggest collapses since the economic crisis and in history.
China, which was once one of the biggest buyers of U.S. debt, is now beginning to turn sour. But it isn’t just China, the central banks of Brazil, Russia and Taiwan are also selling, which pose a significant threat to the overall U.S. economy.
According to Deutsche Bank Securities, using data from the Treasury Department, foreign official net sales of U.S. Treasury debt maturing in at least one year reached $123 billion in the 12 months ending July. This is the largest decline since the data were first monitored in 1978.
Chart courtesy of the Wall Street Journal.
Here is a bit of a breakdown of what’s happening right now:
– China owns $1.241 trillion, down from a record of $1.317 trillion (as of Nov. 2013)
– Japan owns $1.197 trillion, down from $1.22 trillion.
– Belgium owns $155 trillion, which is immensely down from last year’s $352 billion.
– Russia owns $82 trillion, but it fell by $32.8 billion in the year ending July.
– Taiwan owns $169 billion, down by $6.8 billion.
– Brazil owns $257 billion, down from $259 billion over the past 12 months.
– Norway owns $66.5 billion, and saw its holdings decline from $85 billion.
As foreign central banks sell, U.S. and foreign firms have stepped in. The Federal Reserve currently holds $2.45 trillion of Treasury debt, and no one expects the central bank to participate in a sell off. But will it be enough?
Indeed, some central banks are buying, like Canada, the United Kingdom, India and Singapore, but may be insufficient to keep the show going.
If the trend continues in China and Japan, it could pose a substantial risk to the bond market. This new data comes as the federal government will have another fight over raising the debt ceiling, which will inevitably be raised.
As Reagan budget director David Stockman would say, the implosion is near. Don’t worry, the Fed will try to keep this charade going as long as it can with money printing, ZIRP and the reassurance that everything is OK.
“Belgium owns $155 trillion,”