What kind of a cockamamie time is 4 PM to release economic data? That’s when the Treasury Department normally puts out its new figures on foreign holdings of U.S. government debt. Whatever the reason, the October statistics came out late yesterday afternoon, and show a second straight month of downward drift in these stockpiles – which the historical data reveal hasn’t happened since last year, when they fell for four straight months (between April and July). China’s holdings fell for the second straight month, too, and reached their lowest level since last February.
Last month, I expressed some concern that foreigners’ willingness to lend to Americans might be waning a bit. But this new data spotlight more encouraging aspects of the picture (that is, if humongous levels of national indebtedness don’t bother you). They usefully remind how far the nation and world are from even the beginnings of any de-dollarization of the global economy, and how strongly U.S. investors still influence both exchange rates and America’s borrowing costs.
Despite the decline in overall foreign Treasury debt holdings, the October level of $6.0589 trillion was still the third highest on record. Foreign governments – including central banks – reduced their holdings for a second straight month as well, which hadn’t been done since June-August, 2013. But half of the latest 0.38 percent monthly dip was offset by an increase in private foreign investors’ Treasury holdings.
Moreover, global credit markets as a whole displayed no reluctance whatever to lend the U.S. government cheap money. Quite the contrary: From September 30 to October 31, the yield on the benchmark 10-year Treasury note sank from 2.51 percent to 2.33 percent. Today, it’s below 2.10 percent. It’s true that much of this “generosity” reflects the U.S. economy’s widely noticed status as the cleanest shirt in an increasingly filthy global laundry basket, but that’s the universe in which investors operate. Until that global macro landscape changes significantly, expect foreign Treasury stockpiles to hold pretty steady – at the very worst.