Who is Buying US Bonds?

Abe Prime Minister Shinzo

There is only one country that has bought massive long-term U.S. bonds in July and that was Japan. They bought the incredible amount of long-term bonds totaling $52 billion. Most other foreign governments have reduced their holdings of long-term U.S. bonds by $62.5 billion over the same period with Russia dumping $6 billion in July. This is following in line with the expectation of rising interest rates on the horizon so you should have sold the bonds.

The Japanese central bank has bought U.S. bonds because the now see a crash in China on the horizon and the also realize that a rise in US interest rates will cause problems in Japan and will force their rates higher. If interest rates rise in Japan, their debt ratio of over 200% could mean the Japanese government will be forced into a national default (bankruptcy).

Japan sees a crash coming in China and emerging markets. This has led them to shift assets into the US dollar. China in the future faces its own credit crunch that many see as what the US went through in 2007-2009. If China goes, this will be a contagion that will spread to the entire region of South East Asia including Indonesia and then into Japan. Japan has looked into the future and seen the coming dollar rally. The mutual trust among banks in Asia is also collapsing. All these indicators are warning that a similar pattern may lie on the horizon.

In such a situation it is desirable for Japan to be one of the creditors of the United States in the middle of a dollar rally. US bonds are the best deep-pocket that can absorb capital and with the US surpassing Russia now as an energy producer, the smart money realizes that the US will be in a stronger position than Europe or most of Asia.