The US treasury department has published the preliminary results of its annual revisions to foreign holdings of US securities.
In chart form, with an explainer to follow:
The US treasury department publishes monthly estimates of these numbers based on interviews with US financial institutions. But once a year, around now, the department also publishes the results of a time-consuming survey of the major foreign investors in Treasuries, including central banks. (See our previous explanations here and here, and try EconomPic Data here.)
The treasury then revises the numbers from the prior June — as we said, the survey is time-consuming and hence the big lag.
The revisions are considered more accurate than the monthly estimates, and are especially important in the case of China, which tends to buy a lot of its securities holdings through dealers in London. Countries in the Carribean and Luxembourg also act as dealers and normally have big downward revisions in the annual survey as well.
Click to enlarge to see the big revisions made for last June, and the new estimates for the months since then:
Now, the FT does some of the dirty work this morning in comparing the previous December 2010 estimate against the new estimate that accounts for the revisions to last June’s numbers:
The revised figures show that China owned $1,160bn of Treasuries at the end of 2010, compared with a prior estimate of $892bn, published only two weeks ago.
The estimate of UK holdings was slashed to $272bn from $541bn, which suggests that much of the strong foreign buying of Treasury securities over the past year has involved investors using London as a financial centre.
Foreign central banks held $3,156bn of Treasuries, compared with the previous estimate of $2,800bn.
Overall foreign holdings of Treasuries were revised up to $4,440bn from $4,373bn.
In other sharp revisions, Canada’s holding of Treasuries dropped to $77bn from $135bn, while Russia’s rose to $151bn from $106bn.
Japan, the second-largest foreign holder, was relatively steady at $882bn, against a prior figure of $884bn.
Even with the revised numbers, China still owns a little less US government debt than the Fed itself.
The US central bank currently holds $1,205bn in Treasuries and is expected to own $1,600bn by the end of June when QE2 comes to an end.
But this leaves something out. If you look at the chart above, UK holdings have climbed from (a revised) $93bn in June to $272bn at the end of December — while China’s holdings have climbed only a little. If you look at the historical data, it’s easy to see that the increase in the UK’s “holdings” will probably be revised away later.
In other words, the new December 2010 estimates are, in all likelihood, again overstating UK holdings and understating China’s holdings.
And the article is usually wrong, not taking into account the flaws in the monthly estimates. At the moment, China is probably still the biggest holder of treasuries, though the Fed is close and could well surpass it by the time QE2 runs its course. We actually don’t know, and won’t until the June 2011 numbers are themselves revised at this time next year.
But the truth is that this emphasis isn’t really all that helpful. China and the Fed are big holders of US treasuries for different reasons; their presences in the market for treasuries each brings different problems; and their timetable for reducing these holdings will also differ.
Whether the Fed or China is technically the Biggest Holder of US Treasuries actually matters very little; what does matter is that everyone try to get the numbers right.