The US placed about $1.3 trillion of Treasuries with non-Chinese investors in 2008

CFR blog ^ | 01/24/09 | Brad Setser

[TigerLikesRooster]

The US placed about $1.3 trillion of Treasuries with non-Chinese investors in 2008

Posted on Saturday, January 24th, 2009

By bsetser

Yes, China probably bought close to $400 billion of Treasuries too. My top secret model says China bought exactly $374.571 billion of Treasuries in 2008, a record. China certainly bought far more Treasuries in 2008 than in 2007. My model, which accounts for flows through London, suggests that China added $120.3 billion to its Treasury portfolio in 2007.

But the big surge in demand for Treasuries in 2008 didn’t come from China. Other investors increased their holdings of marketable Treasuries by $1310 billion. That is a huge increase from the (estimated) $127 billion increase in their holdings of marketable Treasuries in 2007.

It stands to reason that investors should be debating whether this surge in non-Chinese demand can continue, not whether China will keep on buying Treasuries.

Relatively speaking, the big change in 2008 was the emergence of non-Chinese demand for Treasuries. And not all of that demand came from central banks either.

My best guess is that central banks bought about $650 billion of Treasuries in 2008, up from about $290 billion in 2007. $650 billion is a record by the way. It is also far more than the TIC data indicates, as I am adjusting the TIC data upwards to reflect the fact that the TIC flow data tends to understate official purchases.* It is also a bit more than the roughly $500 billion increase in central banks custodial holdings at the New York Fed. I am not trying to understate the impact of central banks on the market.

[TigerLikesRooster]

So private investors all around the world bought $1 tr of T-bills, and relative share of Chinese government has shrunk. However, how long does it last? This T-bill run is a bubble itself. When it burst, would China bail out along with others or more or less maintain its holdings and have greater say on U.S. affairs?

[TigerLikesRooster]

Ping!

[4rcane]

whats the consequence of US defaulting their loan. Its the least painful of the options available

[alexander_busek]

Yes, I feel much better, knowing that we are over-indebting ourselves not only to the Chinese, but also to, e.g., the Russians and the Saudis.

Regards,

[screaminsunshine]

But these bonds are backed by the full faith and credit of the United States Government.......?? Naahhh! Think I would pass.

[wastoute]

Peter Schiff has been right about everything else. When the holders of these bonds lose faith the bubble will burst. These folks had been buying oil futures just a few months previously and look what happened to the price of oil when they got out and went to Treasuries. When this bubble bursts the consequences are going to be severe. The resulting economic dislocation will force Zero’s gummint to attempt to confiscate firearms to preserve his gummint in the face of massive disapproval. Get ready for the day is coming. Μολὼν λάβε

[Yo-Yo]

When you pull out billions from the equities markets, the only safe and secure place to park that money is in US Treasuries.

Once the equities markets bottom and start a turnaround, the market will be flooded with T-Bills as investors liquidate them for cash to put back into equities.

At that point, the only way to pay off those T-Bills is to sell more T-Bills, but there won’t be any buyers, so interest rates will go through the roof.

Look for massive inflation beginning around the end of the Mayan Calendar...