(Bloomberg) — Two of the world’s largest foreign holders of U.S. government debt dumped a large amount of Treasuries in the third quarter as they rallied ahead of the presidential election.
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Japanese investors sold a record $61.9 billion in securities in the three months ended Sept. 30, U.S. Treasury Department data showed on Monday. Funds in China offloaded $51.3 billion during the same period, the second-largest sum on record.
Treasury yields hit a two-and-a-half-year high in mid-September, before the Republican Party gained control of both houses of Congress and the White House. Since then, stocks have fallen nearly 4% from that level on concerns that President-elect Donald Trump’s low-tax, high-tariff policies will fuel inflation.
“It’s a cocktail of bank and pension selling ahead of the U.S. election in Japan: the risk of a Trump victory and expectations of higher U.S. yields hurt bond sentiment,” said Shoki Omori, chief strategist at the U.S. Japan from Mizuho Securities Co. in Tokyo. “More so in China, where geopolitical risk was a real concern, and that prompted investors to dump Treasuries as well.”
Japan’s sales may have been amplified in part by the country’s intervention in the currency market on July 11 and 12, when the Ministry of Finance sold dollars to buy yen for a total of ¥5.53 trillion yen ( 35.9 billion dollars).
Sales from China may also have been skewed due to the use of escrow accounts. Funds in Belgium, considered the home of such accounts for the Asian nation, bought a record $20.2 billion in Treasury bonds in September.
Japan and China still hold $1.02 trillion and $731 billion in Treasuries respectively, underscoring their influence over the US debt market.
Uncertainty over Trump’s pick for US Treasury secretary is also adding to upward pressure on US yields, along with reducing bets on Federal Reserve interest rate cuts in the face of a resilient economy. .
“We’re confirming everything we’ve started to discount: that Trump will probably have inflationary policies and tariffs, and that will only lead to more selling of Chinese and Japanese Treasuries,” said Nick Twidale, chief analyst at AT Global. Markets in Sydney. “These have been good defensive measures by China and Japan and will probably continue that way.”