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Foreigners Dump Record Amount of US Securities, But Who the Heck Is Still Buying?

The Treasury Department cobbles together data it receives from financial institutions on capital flows in and out of the US. It’s trying to figure out which foreign entity owns what US financial assets. Then on a monthly basis, it issues its Treasury International Capital (TIC) report. And this time, the report for June – released on Friday when everyone was on vacation or getting ready to head out of town for the weekend, and when no one was paying attention – was a zinger: US net capital outflows soared to $153.5 billion, the largest ever recorded.

So who the heck did all the selling?

Nope, it was not the category of “major foreign holders of Treasury Securities” that did the wholesale dumping. Given the crappy yields, they had all the reasons in the world to sell Treasuries. But they were adding to their positions. While there were some ups and downs, the grand total of Treasuries owned by these “major foreign holders” rose by $37 billion from May, to $6.013 trillion. The most ever. Since June last year, the amount that the US government is in hock to overseas entities has jumped by $418 billion.

The two largest holders, China and Japan sold a little. Usual suspect Russia, whose Treasury holdings had been plunging earlier this year, actually added $2.5 billion. And Belgium, the 3rd largest holder of Treasuries added some as well. Earlier this year, Treasury holdings in Belgium had been soaring. How could that tiny country possibly be the third largest holder of Treasuries? Here’s my take… Russia Dumping US Treasuries? But Why the Heck in Belgium?

And this is what Belgium’s mysterious buying binge looks like:

US-Treasuries-held-in-Belgium-06-2014

Who else was buying the flood of Treasuries inundating the “market?” And a flood it was. Despite the dizzying, nay, breathtaking improvements in the deficit that are being bandied about incessantly, the US gross national debt jumped by $864 billion over the 12-month period of the TIC report, from July 1, 2013, through June 30, 2014.

But only two entities bought this new debt:

Foreigners added $418 billion in Treasuries to their holdings over that period – so nearly half of the new debt. Who bought the remaining $446 billion?

The Fed. During that period, it piled an additional $464 billion in Treasuries on its balance sheet.

So the two remaining net buyers, the only two forces left standing to buy US government debt, were foreign countries and the Fed. Their combined holdings of Treasuries soared by $882 billion – $18 billion more than the Treasury issued. The rest of the world, that is US and global investors, were net sellers of US Treasuries.

And what happens as the Fed tapers its Treasury purchases out of existence?

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