China’s Selling Tons of U.S. Debt. Americans Couldn’t Care Less.

Move along now, nothing to see here. Continue shopping, watching the NFL and don’t forget to keep up with the Kardashians. Everything is just fine.

 

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For all the dire warnings over China’s retreat from U.S. government debt, there’s one simple fact that is being overlooked: American demand is as robust as ever.

Not only are domestic mutual funds buying record amounts of Treasuries at auctions this year, U.S. investors are also increasing their share of the $12.9 trillion market for the first time since 2012, data compiled by Bloomberg show.

The buying has been crucial in keeping a lid on America’s financing costs as China — the largest foreign creditor with about $1.4 trillion of U.S. government debt — pares its stake for the first time since at least 2001. Yields on benchmark Treasuries have surprised almost everyone by falling this year, dipping below 2 percent last week.

It’s not the scenario that doomsayers predicted would leave the U.S. vulnerable to China’s whims. But the fact that Americans are pouring into Treasuries may point to a deeper concern: the world’s largest economy, plagued by lackluster wage growth and almost no inflation, just isn’t strong enough for the Federal Reserve to raise interest rates.

This year alone, China’s holdings have fallen about $200 billion as it raises money in support of its flagging economy and stock market. If the pattern holds, it would be the first time that China has pulled back from Treasuries on an annual basis. The tally includes Belgium, which analysts say is home to Chinese custodial accounts.

The People’s Bank of China directed questions on its Treasury holdings to the State Administration of Foreign Exchange, which didn’t reply to a fax seeking comment.

The Chinese pullback has led some to raise troubling questions about the U.S.’s ability to borrow and refinance its obligations at ultra-low rates year after year. It’s also reignited long-held concerns, aired over the years by both Republican and Democratic politicians, that China’s ownership of U.S. debt is a threat to America’s independence.

Full article: China’s Selling Tons of U.S. Debt. Americans Couldn’t Care Less. (BloombergBusiness)

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