Brad Setser

Official demand has been extremely flat the last two years -- with Chinese sales offset by other countries purchases. China is adjusted for Euroclear -- and Chinese sales were stronger in 23 and early 24 than in recent months ... 2/

And unlike in 22 and 23, China is letting its Agency book roll off -- so on net it looks to be reducing its US bond holdings in the US data (subject to the caveat that it may be using custodians other than Euroclear more intensively) 3/

The marginal buyer, especially of notes, is now likely to be a levered US investor -- or an investor in a European financial center (UK, one of the custodial centers) 4/

Now globally there is a missing flow -- I don't think net FDI outflows from China alone are big enough to offset the true Chinese export surplus, so some must be intermediating the offshore dollars of Chinese exporters/ private firms (the oil flow has faded) 5/

There is no real mystery why the official flow to Treasuries has faded at the margin (sales of course can still matter, there is a big stock position) -- most countries have concluded that they have enough reserves so they aren't generally adding to their formal holdings 6/

There are some subplots on top of that: China may be diversifying at the margin (& certainly using a broader set of custodians than the FRBNY facility) but the main theme has been strong private demand for Treasuries (given yield pickup and USD expectations) 7/7