Business

Guess Which Country Is on Track to Replace China as the Largest Foreign Holder of U.S. Treasurys

When you think of demand for U.S. Treasurys, two entities immediately come to mind: the U.S. Federal Reserve and China. However, over the past year, the Fed has kept its holdings flat and China has been quietly selling off a lot of its stake in U.S. paper.

But if Treasurys are being bought up (which they are) while the Fed keeps flat and China sells, who’s doing all the buying?

If you guess Japan, then you’re a winner.

Wait, Japan? As in “highest debt in the world” Japan?

It Looks Like This Country Will Surpass China as the Largest Foreign Holder of U.S. TreasurysJapanese Prime Minister Yoshihiko Noda, leader of the People’s Republic of China Hu Jintao,
& U.S. President Barack Obama

“That’s right, as the chart below shows using TIC [Treasury International Capital] data, even as China was quietly selling its paper (and that accounts for UK holdings, aka Chinese offshore operations) in the beginning of the year, taking its total from over $1.3 trillion to $1.15 trillion in December … it was Japan who quickly stepped in to fill the void,” Zero Hedge reports.

Indeed, while China has quietly reducing its holdings in U.S. Treasury notes, Japan has been buying them up in a big, big way.

“Japanese holdings of US paper have soared from $882 billion in June 2011 to a whopping $1,119 billion a year later. In the process the spread between Chinese and Japanese holdings of US TSYs [Treasurys] has collapsed from $430 billion to a tiny $43 billion,” the Hedge adds.

You know what this means, right? It means, at this rate, Japan will surpass China as the top foreign holder of U.S. Treasurys in about four months.

It Looks Like This Country Will Surpass China as the Largest Foreign Holder of U.S. TreasurysCourtesy Zero Hedge

But let’s back up for a moment. What about Japan’s severe debt issues?

“Japan is about to surpass ¥1 quadrillion [approx. $14 trillion] in total debt. In other words, the last thing the country needs is being saddled with more worthless, zero yielding paper,” Zero Hedge points out. “[E]ven the smallest increase in prevailing Japanese interest rates will awake the colored swan that destroys Japan’s precarious deflationary balance of the past 30 years.”

It Looks Like This Country Will Surpass China as the Largest Foreign Holder of U.S. TreasurysCourtesy Zero Hedge

So what’s going on? Why would a country already struggling with major debt issues invest so heavily in a country that, as TheBlaze noted yesterday, has currency problems of its own?

Here is one theory: Japanese Government Bonds provide such lousy return on investment that Japanese investors “have no choice but to rotate into U.S. paper, which despite its quite meaningless yields, at least provides a greater return than Japanese paper,” Zero Hedge posits.

But how long can this difference in ROI last?

Exit question: What does China plan on doing (buying) with all the money it’s making from selling its stake in U.S. Treasurys?

“We will find out soon. But more importantly, at least we now know who has been the source of real marginal demand for US paper in the past year at a time when China was selling and the Fed was staying put, even as the US Treasury issued another $1 trillion in paper,” Zero Hedge concludes.

Follow Becket Adams (@BecketAdams) on Twitter

Front page photo source: Distressed Volatility, all other photos via AP. This story has been updated.

Comments (50)

1 2
  • Truth4SureNuff
    Posted on August 15, 2012 at 9:42pm

    We may end up with Japan, Germany and the U.K. as allies in the next great war

    Report Post »  
    • ScottYaw
      Posted on August 16, 2012 at 6:40am

      Add Poland, Canada, Jordan, Israel and many others to the list.

      Report Post »  
  • Voice1percent
    Posted on August 15, 2012 at 9:32pm

    Fantastic our debt is finally flowing out of china‘s hands into Japan’s. I will sleep so much better tonight….oyasuminasi! Oh wait didn’t we nuke these folks a long time ago in a galaxy far away……..

    Report Post »  
  • Wartface
    Posted on August 15, 2012 at 8:03pm

    Hmmm… I wonder why OWEbama says we are the richest country in the world and that’s why everyone should have free health care? He must be lying I guess? Good thing he is working toward cutting our deficit in half!

    Report Post »  
  • ccprotect
    Posted on August 15, 2012 at 7:16pm

    when i was a teen i started seeing more and more MADE IN JAPAN stickers on everything even as a teen i was upset that american workers are not selling the products to american buyers… in my 30s all i seen was MADE IN CHINA and thought, Wow do i miss the days when things were made in Japan.
    Looks like my wish will come though. but at the collaps of America is what i was not wishing for.

    Report Post » ccprotect  
    • CapitalismWorks
      Posted on August 15, 2012 at 9:42pm

      Does anyone remember the last time they saw a MADE IS THE USA sticker? I’m dating myself, but THAT is the one I remember, and miss very much.

      Report Post » CapitalismWorks  
  • LameLiberals
    Posted on August 15, 2012 at 7:00pm

    1. We are a Socialist country – not a capitalist republic.

    SS, Medicare/Medicaid/RomneyCare/ObamaCare/ = ALL are SOCIALIST programs. The RINOs and liberals can kick scream yell deny all they want BUT THAT IS A FACT. FORCING people to pay into government mandated socialist programs by threat of jail (IRS) is FASCIST also.

    2. We are an EMPIRE not a republic. And, empires (British, Rome, Egyptian, USA etc – ALL DIE FROM DEBT. No exceptions. ALL empires maintain massive standing armies all over the world breaking the bank at home and borrowing to keep it up. The USA has 900 military installations all over the world and Obama just started another in Australia. Germany/England/S.Korea/Australia etc can pay for their own defense- YET WE DO. Wrap it in a flag, wrap it in charity – whatever – THE USA IS AN EMPIRE and is going to DIE LIKE AN EMPIRE – drowning in debt.

    3. Free markets do not exist in the USA. It is controlled by special interests (farms/foreigners/banks/liberals/rinos to the point where lemonade stands and Girl Scout cookie sales are regulated.

    We did it to ourselves.

    Report Post »  
    • TulsaYeeHaw
      Posted on August 16, 2012 at 7:02am

      Persian, Gupta, Russian (pre1917), and especially the Soviet. You are so right on…. :(

      Report Post »  
  • LameLiberals
    Posted on August 15, 2012 at 6:50pm

    If Japan is our primary debt holder, THEY CALL THE SHOTS (and control our military) That is what China did in Libya. Japan is terrified of China. Now they have the USA by their debt conjones.

    Libya provides all ALL of China’s oil (and France’s also). When the Muslim uprising happened, China and Euro(peans) were afraid an unknown break out fighter Muslim group would get control of “their Libyan oil and cut them off”. NOTE: USA only gets 5% oil from Libya.

    So China ORDERED Obama – USE YOUR TROOPS TO FIGHT OUR OIL BATTLE IN THE MIDDLE EAST or we will dump you treasuries and throw you into a depression.

    (Chinese are communist and have no problem killing their people if they go into recession – worst ever but USA will go down)

    Obama was also terrified if France being a HUGE part of the Euro – went down because of no Libya oil – it would trigger another economic meltdown BEFORE THE ELECTION and he would lose. Europe owns BILLIONS in USA debt.

    So Obama out of fear of a Euro meltdown/his re-election AND because China threatened us, ordered a war on Libya. It was a WAR – when people are killed and billions spent and we have boots on the ground – THAT is war It explains why the USA is not “helping Syrian people” etc – China and France have no oil interest there and neither does anyone who holds our debt.

    Report Post »  
    • LameLiberals
      Posted on August 15, 2012 at 7:02pm

      Bottom Line: If Japan owns our debt, they can order us to fight with them against China if China attacks them.

      Report Post »  
    • DGuy
      Posted on August 15, 2012 at 10:46pm

      No…

      Libya was wanting to sell oil for gold and abandon the US Dollar… THAT is why we bombed the piss out of them. The USD MUST be protected as the worlds reserve currence (petro dollar) at ALL and ANY costs…

      Report Post »  
  • savewhitepeople
    Posted on August 15, 2012 at 6:45pm

    Anti-racist is a code word for anti-White.
    Africa isnt trying to make itself nonblack via a policy of mass non-black immigration and assimilation
    Asia isnt trying to make itself non-Asian via a policy of mass non-Asian immigration and assimilation
    But EVERY white country has the policy of mass non-white immigration and
    assimilation, yet no white country ever voted to become a non-white
    country
    Anti-whites want all white countries to be blended, brown countries: white genocide via mass non-white immigration and assimilation.

    Report Post »  
    • Quixotic-911
      Posted on August 16, 2012 at 1:22pm

      This is too true. It sux that Hitler screwed up white pride for us all.Just because we‘re proud of our Caucasian race and culture doesn’t mean we hate everyone else. I fear that if the white race and culture where to disappear from the earth that it would revert back to the darkness it was before our culture illuminated the rest of humanity. We don’t need to sell the rest of the world on the virtues of our culture, as can be seen by the rapidity with which they are adopting it , it is self evident. Yes we can learn a lot from all the other cultures in the world but, they can learn a lot more from us. It was a long and painful growth process for us to get where we are, let’s not go backwards.

      Report Post »  
  • ltdan
    Posted on August 15, 2012 at 6:44pm

    Prepare for the worst and hope for the best, and choose your friends wisely, because when tough times come, which they are, you will need to group together.

    Report Post »  
  • cemerius
    Posted on August 15, 2012 at 5:57pm

    Hmmmm maybe we can sell all our bases in Japan for 16 trillion dollars and FINALLY leave that country to it’s own?

    Report Post » cemerius  
    • jerseyflash
      Posted on August 15, 2012 at 6:20pm

      67 years ago we TOTALY DESTROYED THIS COUNTRY…so much for ash‘s to ash’s…dust to dust…think of what this LITTLE country has done…in the 70′s….it bought Hawaii…then a large part of California…then came into NY city and bought a large share of the city…it‘s recovered from a 30’s type of depression/recession…and its been loaning money to the most POWERFUL country in the world…I’m from Jersey…so here is my comment….“WHAT UP WITH DAT”….or WTF is going on ????

      Report Post »  
    • snufy
      Posted on August 15, 2012 at 6:52pm

      Jerseyflash, if you lived where there were regulat tidal waves, earthquakes and the place glowed in the dark, wouldn’t you want to buy another place to live?

      Report Post » snufy  
    • PIGSWILLNEVERFLY
      Posted on August 16, 2012 at 9:20am

      Japan’s debt is 200% of it’s GDP and is the worst economy of all. There is only so much production in the world creating any actual wealth. The paper the central bankers create is fake money used to create fake support for themselves to maintain control of the actual wealth. Thank the following: Paul Warburg 1910- Jekell Island meeting re: Federal Reserve Act of 1913. His son, Banker James Paul Warburg, who said, speaking before the US Senate (CFR) Feb 17, 1950, “We wil have a World Government weather you like it or not. The only question is weather that government will be achieved by conquest or consent.” His father, Paul Warburg was director of the CFR in 1921 (the CFR is a private club) NOT a gvmt agency! Paul Warburg was a trustee of the Brookings Institute until his death. William Benton, 1946 Speech to UNESCO. David Rockefeller, Pres. Chase Manhattan Bank, Pres CFR, Founder & Pres Trilateral Commission said,1994, “We are on the verge of a global transformation. All we need is the RIGHT MAJOR CRISIS and the nations will accept the NWO.” Any question who Obama answers too!!! Mikhail Gorbachev, 1987, “We are moving toward a NWO, the world of communism, We shall NEVER turn off that road.” Strobe Talbot; Bill Clinton’s buddy at Oxford, “In the 21st Century national sovereignty wil cease to exist; we will all answer to a single global authority’; Talbot is Pres. of Brookings Institute – writing policy we are presently enjoying – not! Garbage IN-Garbag

      Report Post » PIGSWILLNEVERFLY  
  • JohnQTaxpayer
    Posted on August 15, 2012 at 5:13pm

    The last days of the fiat currency world are coming to an end.

    Hang on to something it will be a bumpy ride to sanity.

    Report Post » JohnQTaxpayer  
    • Taxpaying Contributor
      Posted on August 15, 2012 at 11:42pm

      Physical assets. Friends, Foundation, Family, Faith, and some kind of Forgiveness when we catch up with these rapscallions God guns gold food and water are on the list….

      Report Post » Taxpaying Contributor  
  • team1blazer
    Posted on August 15, 2012 at 4:38pm

    It really doesn’t matter WHO is holding our debt. The fact of the matter is that the borrower will ALWAYS be a slave to the lender. Wake up America, our childrens future is being sold down the road.

    Report Post » team1blazer  
  • Rothbardian_in_the_Cleve
    Posted on August 15, 2012 at 4:29pm

    This is only half the story. The story claims that the Fed has kept holdings flat, that’s not true. They have increased their balance sheets with Agency Bonds (GSE’s) as well as swapping this paper out with sovereign trading desks. The idea being that too many people are watching sovereign paper so if we do a little shell game with the Agencies we can use an intermediary to mask the fact that each country (Japan, China, US) is passing off it’s own debt.

    Report Post » Rothbardian_in_the_Cleve  
  • lukerw
    Posted on August 15, 2012 at 4:26pm

    The Divine Wind… was originally… a Storm that destroyed a Chinese Fleet… that was Invading Japan!

    Report Post » lukerw  
    • TIME_THE_AVENGER
      Posted on August 15, 2012 at 9:59pm

      oh that Japan…sandbaggin and teabaggin…Mothra AND Gamera in the air plus Godzilla on the ground…

      Report Post » TIME_THE_AVENGER  
  • justangry
    Posted on August 15, 2012 at 4:25pm

    Yay… We’re number one!

    Report Post » justangry  
  • OniKaze
    Posted on August 15, 2012 at 4:21pm

    Japanese people (as a whole) are not stupid (weird maybe if you follow their pop culture… but not stupid). They don’t do anything unless they have a reason..

    WWII’s Japanese uprising was a pursuit of materials that had been cut off by an American embargo. If your country has no real resources of its own you have to get them somewhere.. so Imperial expansion was necessary for the “modernization” of Japan…

    I am sure that this is the same… They are probably staging themselves to be in a good position to demand things they need of the U.S. by “cashing in their chips” when their resources run low again..

    Report Post » OniKaze  
  • Snowleopard {gallery of cat folks}
    Posted on August 15, 2012 at 4:20pm

    China knows something is about to come down in the US, probably Obamas dictatorship and the promise of the Democrats to collapse the economy before yielding power to the Republicans.

    This is in additon to the fact the funds will provide a temporary infusion of needed cash to boost their economy as it continues to contract.

    Report Post » Snowleopard {gallery of cat folks}  
    • Rothbardian_in_the_Cleve
      Posted on August 15, 2012 at 4:35pm

      China is limiting their exposure to debt monetization. They know uncle Ben is fixin’ to print more. The hold dollar denominated debt in an interest rate market that is being managed down by the Fed. They don’t want to get paid back in devalued dollars at 1% interest. They don’t want our exported inflation. So the US accuses them of currency games. Sure they are, they are looking for their own self interest. Would you want 50 cents on the dollar at 1%? So they are trying to push the dollar out of reserve currency status so that the Fed couldn’t do this. They could demand Yuan Bonds on us debt and we couldn’t print our way out of it.

      We have done this to ourselves. Our fiscal mismanagement combined with expansionary fiat monetary policy leads to sovereign debt pressure. Our little game of printing, interest rates, and exporting inflation only works so long as the dollar is compulsory. Look at what China is doing in the commodity market in Africa. Look at why we killed Gadhafi (African Gold Monetary Unit), look at the russian/chinese SDR oil contracts. Countries are lining up to end our little game. Tick tock tick tock.

      Report Post » Rothbardian_in_the_Cleve  
    • lukerw
      Posted on August 15, 2012 at 4:57pm

      This is about Destruction… not Economics! You are Right!

      Report Post » lukerw  
    • Link8on
      Posted on August 16, 2012 at 9:17am

      This article only tells me that Japan and Communist China are on opposite sides of the US Bond issue.

      Pity the fools in DC and the overspenders who got us here.

      What about the Iranians who counterfeit the dollars and euro’s?
      Maybe they will expand such operations to our respective bonds as well.

      Report Post » Link8on  
  • Detroit paperboy
    Posted on August 15, 2012 at 4:12pm

    The world is awash in oil……the reason we are paying so much at the pump is because the dollar is worth less…….or worthless, whichever you prefer………

    Report Post »  
  • Lothmar
    Posted on August 15, 2012 at 4:03pm

    Looks like Japans hedging their bets on several countries hoping to cash in when someone takes inevitable control of the world economy and that paper becomes worth something.

    Report Post »  
  • thegreatcarnac
    Posted on August 15, 2012 at 4:03pm

    What fools we are. Who are we going to borrow from next……Bangladesh???

    Report Post »  
  • KidCharlemagne
    Posted on August 15, 2012 at 3:59pm

    Since crude oil can only be bought and sold around the world using U.S. dollars, then this means that Japan is stocking up on crude oil for some reason.

    Report Post »  
  • Mikev5
    Posted on August 15, 2012 at 3:59pm

    This is a very smart move on Japans part

    I don’t trust China I have always said how did China all of a sudden get rich I think they are playing a Global Ponzi scam on everyone.

    Report Post » Mikev5  
  • KickinBack
    Posted on August 15, 2012 at 3:49pm

    “Japanese holdings of US paper have soared from $882 billion in June 2011 to a whopping $1,119 billion a year later…”

    I think someone just pulled a Biden. :P

    Report Post » KickinBack  
  • Detroit paperboy
    Posted on August 15, 2012 at 3:49pm

    So,,,,,my right pocket is borrowing from my left pocket……and I didn’t go to Harvard or Columbia….to know a crash is coming…….

    Report Post »  
  • MiCurmudgeon
    Posted on August 15, 2012 at 3:48pm

    If Bernie Madoff pulled off this fishy scheme, his butt would be in jail forever and a little more. Since it is Obama and Geitner and Bernanke we are supposed to accept being robbed and our kids put in debt forever. We must elect Romney /Ryan to save this country.

    Report Post »  
    • chips1
      Posted on August 15, 2012 at 10:44pm

      It’s not just Obama. It‘s all of the freaks that have been put into top positions from the government down to the company CEO’s. Judges, lawyers and Supreme Court Justices are included in the corruption side of America. When defending yourself becomes illegal, it’s all over.

      Report Post »  
  • Mikev5
    Posted on August 15, 2012 at 3:41pm

    Japan is our frien thats why and they hate China

    Report Post » Mikev5  
    • OniKaze
      Posted on August 15, 2012 at 4:24pm

      The loyalty of the Japanese people to the United states will NEVER be in question as long as our government is friendly towards them and treats them fairly (Honor is a keypoint to the Japanese way of life, and in that regard, Americans can learn alot from the Japanese)…

      But with Obama in office, the relations have become strained… Lets hope that President Romney will smooth things over with them, since Japan is one of our best allies…

      Report Post » OniKaze  
1 2

Sign In To Post Comments! Sign In

Sign Up For Our Newsletter!

Glenn Beck Radio

Listen to Glenn Beck 24/7 Listen Now
Restoring Love