(Bloomberg) — Two of the world’s largest foreign holders of U.S. government debt unloaded a pile of Treasuries in the third quarter as they surge ahead of the presidential election.
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Data from the US Treasury Department on Monday showed that Japanese investors sold a record $61.9 billion in securities in the three months ended September 30. Funds in China unloaded $51.3 billion during the same period, the second largest amount ever.
Treasury yields peaked at their highest level in two and a half years in mid-September, before the Republican Party took control of both chambers of Congress and the White House. The securities have since fallen about 4% from that level on concerns that President-elect Donald Trump’s low-tax and high-tariffs policies will lead to higher inflation.
“It’s a combination of bank and pension selling ahead of the US election in Japan – the risk of a Trump win and expectations of higher US yields have hurt sentiment towards bonds,” said Shoki Omori, chief strategist in Mizuho Securities’ Japan office. Tokyo. “More so is the case in China where geopolitical risks have been a real concern, and this has prompted investors to dump Treasuries as well.”
The selling in Japan may have been magnified in part by the country’s intervention in the foreign exchange market on July 11-12 when the Ministry of Finance sold dollars to buy yen for a total of 5.53 trillion yen (US$35.9 billion).
China sales may also have been skewed by its use of custodial accounts. Funds in Belgium, seen as home to such accounts for the Asian country, bought a record $20.2 billion in Treasury bonds in September.
Japan and China still own $1.02 trillion and $731 billion worth of Treasury bonds respectively, underscoring their influence over the US debt market.
Uncertainty over Trump’s choice for US Treasury Secretary is also adding upward pressure on US yields as well as reducing the Fed’s bets on lowering interest rates in the face of a resilient economy.
“We are confirming everything we started pricing in, which is that Trump is likely to have inflationary policies and tariffs, and that will only lead to more Treasuries sales from China and Japan,” said Nick Twidale, senior analyst at AT Global. Markets in Sydney. “It has been good defensive action by China and Japan, and this is likely to continue.”
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