(Bloomberg) — Two of the world’s biggest foreign holders of US government debt offloaded a pile of Treasuries within the third quarter as they rallied before the presidential election.
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Japanese investors sold a record $61.9 billion of the securities within the three months ended Sept. 30, data from the US Department of the Treasury showed on Monday. Funds in China offloaded $51.3 billion through the same period, the second biggest sum on record.
The return on Treasuries peaked at a 2-1/2 12 months high in mid-September before the Republican Party gained control of each houses of Congress and the White House. The securities have since dropped almost 4% from that level on concern President-elect Donald Trump’s low-tax, high tariff policies will fuel inflation.
“It’s a cocktail of banks and pension selling ahead of the US elections in Japan — the chance of a Trump win and expectations of upper US yields bruised sentiment for the bonds,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities Co. in Tokyo. “Much more so in China where geopolitical risk was an actual concern, and that’s spurred investors to ditch Treasuries too.”
Japan’s selling can have been partially amplified by the nation’s intervention within the foreign-exchange market on July 11 and 12 when the Ministry of Finance sold dollars to purchase the yen for a complete of ¥5.53 trillion yen ($35.9 billion).
The sales by China can have also been skewed on account of its use of custodial accounts. Funds in Belgium, seen as a house to such accounts for China, bought a record $20.2 billion of Treasuries in September.
Uncertainty over Trump’s pick for US Treasury secretary can also be adding to the upward pressure on US yields together with paring of Federal Reserve interest-rate cut bets within the face of a resilient economy.
“We’re confirming every thing we’ve began to price in — that Trump’s likely going to have inflationary policies, tariffs, and that’s going to only result in more Treasury sales from China and Japan,” said Nick Twidale, chief analyst at AT Global Markets in Sydney. “They’ve been good defensive measures by China and Japan and that’s probably going to proceed.”
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