The article noted that the most recent report from the Federal Reserve of foreign holdings of U.S. Treasuries fell from a record decline of $375 billion as of the September report to another record $403 billion as of the October report. Zero Hedge noted that “there has never been such an aggressive selling of US Treasuries over a 12 month period in history.” This massive dishoarding of U.S. Treasuries is pictured on your left.

Perhaps Lee didn’t mention China because in looking at the chart below it seems that China has continued to hold a considerable amount of U.S. Treasuries and that in fact no significant trend has been broken. However, as Zero Hedge reported, in October, according to the Fed’s latest report, China was the largest seller of Treasuries, dumping $41 billion of U.S. paper and bringing its total U.S. Treasury holdings to $1.116 trillion, the lowest amount of U.S. paper held by Beijing since 2010. In the process, China has now been overtaken by Japan for the top U.S. creditor position, in terms of total holdings, with $1.132 trillion.

Indeed, as Zero Hedge has pointed out in the past, it is almost certain that Belgium is acting as China’s “secret” offshore Treasury holdings, courtesy of Euroclear. The chart on your left shows the tight correlation between Chinese holdings of Treasuries and those of Belgium, which, given its small size is clearly acting as an agent for one or more much larger holders of Treasuries.

In its Dec. 16 article, Zero Hedge continued as follows:

“As we pointed out one month ago, what has become increasingly obvious is that both foreign central banks, sovereign wealth funds, reserve managers, and virtually every other official institution in possession of US paper, is liquidating their holdings at a disturbing pace, something which in light of the recent surge in yields to over 2 year highs, appears to have been a prudent move.

“In some cases, like China, this is to offset devaluation pressure; in others such as Saudi Arabia and other petroleum exporting nations, it is to provide the funds needed to offset the drop in the petrodollar, and to backstop the country’s soaring budget deficit. In all cases, it may suggest concerns about a spike in future debt issuance by the US, especially now under the pro-fiscal stimulus Trump administration.

“So who are they selling to? The answer, at least until August, was private demand, in other words just like in the stock market the retail investor is the final bagholder, so when it comes to US Treasuries, “private investors” both foreign and domestic are soaking up hundreds of billions in central bank holdings. As we said two months ago when we observed this great rotation in Treasuries out of official holders into private hands, “we wonder if they would [keep buying] knowing who is selling to them.” Well, last month this changed, and after private investors had been happily snapping up bonds for 4 straight months, in September “other foreign investors” sold a whopping $31 billion, bringing the total outflow between public and private foreign holdings to $76.6 billion, the second highest number on record. In October, while foreign official entities sold another $45 billion, at least the pace of selling by private entities moderated somewhat, to “only” $18.3 billion.

“Meanwhile, while just four months ago yields had tumbled to near all time lows, suddenly the picture is inverted, and long-yields are surging on concerns that not only will the ECB and the BOJ soon taper their purchases of the long end, but that Donald Trump is about to unleash a $1 trillion debt tsunami at a time when the Fed will not be available to monetize it, now that the Fed is again hiking rates.

“While it is unclear under what conditions foreign buyers may come back – after all TSY rates have already jumped high enough to where US paper should be more than attractive to foreign official institutions – one thing is clear: as of this moment the selling strike not only continues but is accelerating, and should the foreign liquidation of Treasuries fail to slow, Yellen will soon have to plan how to not only abort the current rate experiment which continues to pressure yields higher around the globe, but to start thinking how to launch QE4 instead.”