China, Russia Pare US Treasuries Holdings as Trade Tensions Rise. A Sign of Things to Come?

rtx1gzco.jpgPresident Donald Trump threatened to escalate the trade fight with China into an all-out trade war on Monday, promising to impose massive tariffs on Chinese goods unless Beijing reverses course on its own trade actions.

Meanwhile, foreign governments have pulled back their purchases of longer-term US debt as trade tensions escalate, with Russia dumping half of its holdings. Could this be a sign of things to come?Trump directed the US Trade Representative’s office to begin drawing up a list of $200 billion worth of Chinese goods to hit with a 10% tariff, dwarfing the size of previous trade actions against China.

Monday’s announcement comes just three days after Trump officially announced that tariffs on $50 billion worth of Chinese goods would be subject to a new 25% tariff starting July 6. The tariffs were the result of an investigation by Commerce Department into the theft of US intellectual property by Chinese companies.

Following Trump’s announcement, China rolled out retaliatory tariffs on $50 billion worth of US goods and promised to stand firm against the US’s actions.

Foreign governments dumped more Treasuries in April than in any month since January 2016.2018-06-15 (1).png

Hedge funds were buyers (as implied by the rise in holdings from the Cayman Islands)…they added $15.2 billion in April – the most ever…

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The biggest selling culprit was not “good friend” China who saw a small $5.799bn reduction in its Treasury holdings in April to $1.18 trillion…

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And while “Great ally” Japan did dump Treasuries for the 8th month in the last 9 to it lowest holdings since Oct 2011…2018-06-15_13-08-08.jpg

It was Vladimir Putin that decided to puke the most US Treasuries out of Russia ever, liquidating half, or $47.4 billion, of its US Treasuries in one month, to its lowest holdings since March 2008!2018-06-15_13-13-38.jpg

Source: US Treasury

Subsequently this happened in April…

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Russia dumped half of everything it had ($48bn) and yields on the 10Y rose around 35bps. One can’t help but wonder – as the Yuan-denominated oil futures were launched, trade wars were threatened, and as more sanctions were unleashed on Russia – if this wasn’t a dress-rehearsal, carefully coordinated with Beijing to field test what would happen if/when China starts to really liquidate.

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