Douglas Rising
China's weaker demand for U.S. Treasuries is likely to continue due to slowing trade, said Torsten Slok, chief economist at Apollo Global Management.
As Chinese exports have been slowing, China has fewer dollars to recycle into US Treasuries ($10Y).), (US30Y) and other global markets, Slok said during an interview with CNBC.
The largest foreign holders of US debt are Japan and China. In August, China had around $805 billion, the lowest level since 2009.
China has been selling US Treasury bonds, but this year $300 billion less than in 2021.
“We also have that Japanese yields have been rising,” he said. “Japanese investors own more than a trillion dollars in the US Treasury. Therefore, if Japanese investors find their own yields in their own backyard more attractive, there is certainly a risk that US rates will rise.”
The Bank of Japan hinted that it will reverse its negative rate policy during the first half of 2024.
But the biggest risk to US Treasuries is their supply, and the supply from the physical deficit that continues to persist.
“A few weeks ago we had a 30-year auction that didn't go very well because we just didn't have enough demand,” Slok said. “Next year we will have a lot of 10- and 30-year auctions, where the market will re-examine the exact question.”
Next Treasury bond auctions: December 11 and 12.
