Global Investors Shed US Government Debt Ahead of Presidential Election
In a significant shift, two of the world’s largest foreign holders of US government debt, Japan and China, sold a substantial amount of Treasuries in the third quarter. This move came as the securities rallied before the US presidential election.
Record Sales in Japan and China
Data from the US Department of the Treasury reveals that Japanese investors sold a record $61.9 billion of Treasuries between July and September, while Chinese funds offloaded $51.3 billion during the same period, the second-largest sum on record.
Market Sentiment Shifts
The return on Treasuries reached a 2-1/2 year high in mid-September, only to drop almost 4% after the Republican Party gained control of both houses of Congress and the White House. This decline is attributed to concerns over President-elect Donald Trump’s policies, which are expected to fuel inflation.
Investor Concerns
According to Shoki Omori, chief Japan desk strategist at Mizuho Securities Co., “the risk of a Trump win and expectations of higher US yields bruised sentiment for the bonds” in Japan. Similarly, in China, geopolitical risk and concerns over Trump’s policies led investors to divest from Treasuries.
Intervention in Foreign-Exchange Market
Japan’s intervention in the foreign-exchange market in July, where the Ministry of Finance sold dollars to buy yen, may have contributed to the country’s increased selling of Treasuries. Additionally, China’s use of custodial accounts may have skewed its sales data.
Uncertainty Over US Treasury Secretary
The uncertainty surrounding Trump’s pick for US Treasury secretary is adding to the upward pressure on US yields, along with the paring of Federal Reserve interest-rate cut bets in the face of a resilient economy.
Outlook for Future Sales
Nick Twidale, chief analyst at AT Global Markets, believes that “Trump’s likely going to have inflationary policies, tariffs, and that’s going to only lead to more Treasury sales from China and Japan.” This trend is expected to continue as both countries take defensive measures to protect their economies.
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