The pace of foreign selling of US Treasuries continued in October at a sharp pace. Foreigners sold a net $63.5b of notes and bonds and brings the year to date amount of liquidation to $321b. China continued its selling, by $25.7b and brings the last 5 months of selling to $109b. We know the reasons. Japan continued its selling too, by another $16.1b but they are now the largest foreign holder of US Treasuries, surpassing China. Europe was also net sellers of notes and bonds. Outside of China that has its own internal reasons for their selling, the spread pick up of buying US Treasuries has disappeared because of the high cost of hedging out the FX risk.
Bottom line, foreign selling of US Treasuries is not new as it’s been going on since 2015 but the pace has really accelerated over the past 7 months with China leading the way as they see their reserves shrink. This has been a factor in my bear case on bonds and I don’t see this reversing anytime soon.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.