Foreign holdings of Treasury securities
Tomorrow the Treasury Department will release its latest figures for foreign nation holdings of Treasury bills (as you already know 
). The major change over the past year has been the dramatic increase in ownership taken by oil producing countries that, flushed with new petrodollars, are snatching up Treasuries like its their job.
What I thought was interesting about this article from Bloomberg is that in mentioning this point it makes this fact sounds scarier than it actually is.
Here is the text from Bloomberg, “Oil brings Americans closer to OPEC Debtor Dependence” (July 14, 2008):
“Petroleum-exporting nations from Saudi Arabia to Russia are not only charging Americans record high prices for fuel, they are also poised to become the biggest creditor to the U.S. government
Holdings of Treasuries by oil producers and institutions such as U.K. banks that are proxies for Middle East nations rose 44 percent this year to $510.8 billion through April, four times faster than the rest of the world, according to the Treasury Department’s most recent data. At the current pace, they’ll surpass Japan, which holds $592.2 billion, as the largest owner this month.
While the investment of so-called petrodollars into government debt is helping to temper a rise in borrowing costs as the U.S. finances a record budget deficit, it highlights America’s dependence on foreign money.
“We should be very happy that they’re buying U.S. Treasuries because they’re keeping interest rates low, and that’s a positive for bond investors,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “Whether there’s geopolitical risk is something else.”
The article makes it seem like OPEC is about to become the largest holder of US debt. In fact, the title is called “Oil brings Americans closer to OPEC Debtor Dependence”! However, a look at the data reveals something very different. The article confounds oil producing countries and OPEC for dramatic effect – just look at how they bring in Russia (not a member of OPEC) in the first sentence.
Who is included in the their list of oil producing countries? As far as I can tell from the data – they include Mexico, Brazil, and Norway! It’s tough to tell exactly who is included since the article includes some of the UK holdings as OPEC-proxies. However, even if all of the UK holdings are considered as OPECs, the US is still not entirely beholden to OPEC. Brazil in itself is almost as big as OPEC sans-proxies! I don’t know about you but this doesn’t exactly come across in the title or in the article.
The statistics are more fun and informative. From the Treasury Department, the major foreign holders of treasury securities are listed below. The most striking thing for me is the growth of Brazil as a holder of securities (88% year-on-year, 5th largest holder) – not mentioned anywhere in the article. It’s also interesting for me to see how large Japan and China’s holdings are. They hold 42% of all foreign nation held Treasury securities!
OPEC is still not close to being the largest owner of U.S. Government debt – but for many even its rise to number 4 (or higher with proxies) is problematic. That is a topic for another day.
