Global Central Banks Sell U.S. Debt At Fastest Pace On Record Amid EM Slowdown

For years, emerging market Central Banks have piled into U.S. debt, in order to bolster their foreign currency reserves. This trend intensified amid booming trade surpluses fueled largely by the sale of commodities.

Now, this foreign feast on U.S. debt has come to an end.

Fast forward to present day, the global economy is under pressure from a slowdown in emerging markets, largely spurred by China amid falling oil prices and commodity prices, and capital outflows due to concerns as the U.S. Federal Reserve moves closer to a hike in its near-zero interest rates which has supported the demand for riskier assets in emerging markets.

Now, global Central Banks — including China, Russia, Brazil, and Taiwan — are dumping U.S. debt at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Previously, all four were large purchasers of U.S. debt.

The shift out of the Treasury market is the latest symptom of this emerging markets slowdown that is now threatening to spill over into the U.S. economy.

Foreign official net sales of U.S. Treasury debt maturing in at least a year reached $123 billion in the 12 months ended in July, said Torsten Slok, chief international economist at Deutsche Bank Securities, citing Treasury Department data, The Wall Street Journal (WSJ) reports. This was the biggest decline since official data started to be collected in 1978, according to the WSJ. A year earlier, foreign Central Banks had purchased $27 billion of U.S. notes and bonds.

China, the largest foreign owner of Treasury securities, owned $1.241 trillion Treasury debt at the end of July, down from a record of $1.317 trillion in November 2013, according to the latest data available from the Treasury, the WSJ reports.

And China isn’t alone.

Russia’s holdings of all U.S. Treasury debt fell by $32.8 billion in the year ended in July, according to the latest data available from the U.S. Treasury, according to the WSJ.

Chart courtesy of The Wall Street Journal