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China dumping US debt as North America's domestic buying soars

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October 19
9:47 PM 2015

The China's withdrawing from the US government debt is being overlooked as robust demand in the domestic market is increasing. Several US mutual funds have started buying treasuries at auction. The US investors are also increasing their buying.

This increased support from within the domestic market is leaving less impact of China's retreat from the US government treasuries market. The US funds buying in government treasuries increased to over 40 percent from 35 percent in 2014. 

The US investors' share in the $12.9-trillion US treasuries markets is increasing for the first time since 2012, according to Bloomberg data. The US funds buying level in the government treasuries is increasing to over 40 percent this year so far from 35 percent in 2014 and 30 percent in 2013. 

China is the largest foreign creditor with $1.4 trillion of US government debt and the dragon country has started reducing its share for the first time since 2001. Adding to this, the yields on benchmark Treasuries slipped below two percent and the 10-year note yielded 2.04 percent in Tokyo market.

Americans are pumping in huge amounts into the government treasuries and this could also indicate the deeper concern about the economy. The key factors such as sluggish wage growth and near no inflation are not sufficient for US Federal Reserve to hike interest rate. The concerns about global growth are increasing.

The US had borrowed heavily to pull the sluggish economy out of the slowdown. This had many overseas investors pumped in huge amounts of money into government treasuries. Foreign investors' investment in US government treasuries more than doubled to $6.1trillion since 2008. 

Belgium, Euroclear, has been selling treasuries as against its buying binge in 2014. Belgium is a clearing house for China and many other emerging markets as well. Euroclear is the pre-eminent provider of post-trade services. Euroclear holds assets worth over euro 28 trillion. It settles transactions over euro634trillion every year.

China and other emerging economies generally park their huge funds in reserves of Belgium's Euroclear. The selling activity in treasuries to the tune of $45 billion brought down the total to $111billion from $335billion in January 2015.

According to Euroclear, China has been dumping treasuries and liquidating reserves from January 2015 onwards. China's reserves were down to $1.38 trillion from $1.6 trillion. 

Registering its slowest growth rate since 2009, China's economy grew 6.9 percent during the third quarter. The Chinese government has set a target of seven percent growth rate for 2015. China's holdings fell $200 billion as it withdrew money to support the domestic market. 

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