China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

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China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.  

Prior to the fall of 2008, acccording to Treasury Department data, Chinese ownership of short-term Treasury bills was modest, standing at only $19.8 billion in August of that year. But when President George W. Bush signed legislation to authorize a $700-billion bailout of the U.S. financial industry in October 2008 and President Barack Obama signed a $787-billion economic stimulus law in February 2009, Chinese ownership of short-term U.S. Treasury bills skyrocketed.

By December 2008, China owned $165.2 billion in U.S. Treasury bills, according to the Treasury Department. By March 2009, Chinese Treasury bill holdings were at $191.1 billion. By May 2009, Chinese holdings of Treasury bills were peaking at $210.4 billion.

However, China’s overall appetite for U.S. debt increased over a longer span than did its appetite for short-term U.S. Treasury bills.

In August 2008, before the bank bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at $573.7 billion. That number continued to escalate past May 2009-- when China started to reduce its holdings in short-term Treasury bills--and ultimately peaked at $1.1753 trillion last October.

As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.

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Most of the U.S. national debt is made up of publicly marketable securities sold by the Treasury Department and I.O.U.s called “intragovernmental” bonds that the Treasury has given to so-called government trust funds—such as the Social Security trust funds—when it has spent the trust funds’ money on other government expenses.

The publicly marketable segment of the national debt includes Treasury bills, which (as defined by the Treasury) mature in terms of one-year or less; Treasury notes, which mature in terms of 2 to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30 years.

At the end of August 2008, before the financial bailout and the stimulus, the publicly marketable segment of the U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was in TIPS.

At the end of March 2011, by which time the Chinese had dropped their Treasury bill holdings 97 percent from their peak, the publicly marketable segment of the U.S. national debt had almost doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS.

Before the end of March 2012, the Treasury must redeem all of the $1.7 trillion in Treasury bills that were extant as of March 2011 and find new or old buyers who will continue to invest in U.S. debt. But, for now, the Chinese at least do not appear to be bullish customers of short-term U.S. debt.

Treasury bills carry lower interest rates than longer-term Treasury notes and bonds, but the longer term notes and bonds are exposed to a greater risk of losing their value to inflation. To the degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of March must be converted into longer-term U.S. Treasury securities, the U.S. government will be forced to pay a higher annual interest rate on the national debt.

As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement. Of that, approximately $9.74 trillion was debt held by the public and approximately $4.61 trillion was “intragovernmental” debt.

U.S. Adds 244,000 Jobs in April, but Unemployment Rises

Pace of employment growth accelerates; unemployment up to 9 percent.

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 U.S. employment growth accelerated last month as the economy added 244,000 jobs, but the unemployment rate rose to 9 percent, the Labor Department reported on Friday.

The report easily bested analysts' expectations for a decidedly mediocre jobs report and marked the fastest rate of employment growth since last year when census hiring inflated numbers. Private-sector growth clocked in at 268,000, the highest level since 2006. The public sector continued to lose ground, shedding 24,000 jobs in April.

Hiring in the service sector drove the gains, with sizable jumps in retail trade (up 57,000), professional and business services (up 51,000), leisure and hospitality (up 46,000), and health care (up 37,000). Goods-producing sectors showed less of a bump, and construction job levels didn't budge, a reflection of how depressed the housing market continues to be.

The number of long-term unemployed--defined as those individuals being out of work for more than 26 weeks--fell 283,000 to 5.8 million, and their share of  unemployment fell to 43.4 percent.Payroll jobs numbers and the unemployment rate are calculated from two separate surveys, which helps explain the conflicting readings of faster job growth and higher unemployment. The precise reason for the discrepancy isn't yet clear, but the unemployment survey has a smaller sample size and tends to be more volatile than payroll numbers, which are generally a more reliable indicator of labor market health.

April's unemployment-rate rise also followed a steep, full percentage-rate drop over the prior four months, which had surprised analysts as being stronger than expected.

Although Friday's numbers certainly mark an improvement over previous reports, it will take another two and a half years before the economy reaches prerecession employment levels. How long after that it will need to add enough jobs to compensate for population growth will depend on how many people rejoin the labor force. Without question, it would be many more months.

There are some other reasons for caution, says Heather Boushey, a senior economist at the left-leaning Center for American Progress. Average hours of work didn't increase, and wages, while up nominally, didn't really rise once adjusted for inflation. "This does give me pause," she said, adding that "we really need to be seeing job growth above 300,000 to be getting the unemployment rate down."

House Speaker John Boehner, R-Ohio, welcomed the improved numbers in a statement but pointed to uncertainty as the reason the labor market hasn't improved more rapidly.

"Job growth in America is still nowhere close to what it should be," he said. "Our economy continues to suffer from the uncertainty being caused for private-sector job creators by the Democrats who run Washington."

Austan Goolsbee, head of President Obama's Council of Economic Advisers, also said that growth needed to quicken but attributed some of the improvement so far to White House initiatives such as the payroll-tax holiday and investment incentives.

These initiatives "are creating the conditions for companies to add new jobs and foster the industries of the future," he said. "We will continue to work with Congress to find ways to reduce spending, so that we can live within our means without neglecting the investments in education, infrastructure, and clean energy that will strengthen our economy."

Although the monthly job-creation estimates attract enormous attention among both investors and the general public, they are precarious numbers. The Labor Department frequently overhauls them a month later. And because the net change in new jobs per month is a minuscule fraction of all jobs in the country, the numbers are often volatile from month to month. 

The Labor Department also revised upward its job-growth figures for February and March. March's increase was changed to 221,000 from 216,000. February's was raised to 235,000 from 194,000.