Saudi Arabia’s Buying of U.S. Treasuries Is Soaring Under Trump
(Bloomberg) – By now, President Donald Trump’s bromance with Mohammed bin Salman of Saudi Arabia is well documented. The platitudes and chummy photo-ops. The billions of dollars in U.S. arms sales. And, of course, the willingness to brush aside evidence implicating the crown prince in the murder of journalist Jamal Khashoggi.
But what’s gone largely unnoticed is just how enthusiastic the kingdom has been in snapping up America’s debt.
After aggressively culling its holdings of U.S. government debt for most of 2016, Saudi Arabia has amassed an even larger position since Trump’s election in November that year. Based on the latest reported figures, the nation nearly doubled its ownership of Treasuries to $177 billion. No major foreign creditor has ramped up its lending to the U.S. faster.
Coincidence? Perhaps. After all, you could probably marshal any number of plausible explanations for the timing of the oil-exporting nation’s buildup that don't involve some political quid pro quo. Rising petrodollar revenue. Risk aversion. A shift out of negative-yielding bonds. And considering how big the U.S. deficit has grown because of Trump’s tax cuts, the amounts involved won’t move the needle all that much when it comes to America’s financing needs.
Whatever the case may be, however, this much is clear: as Trump continues to defend Prince Mohammed in the face of growing criticism on a whole host of issues, from the Saudi-led war in Yemen to his alleged role in the gruesome killing of Khashoggi, the kingdom has everything to gain from appearing to lend financial support to its most important ally — even if it isn’t intentional. That's particularly true after talk surfaced in May that China, the largest foreign creditor to the U.S., might be considering the unlikely move of dumping its Treasuries to punish Trump over his trade war. (Though at the Group of 20 summit in Osaka, the two countries declared a truce, at least for now.)
“It’s a relationship where one hand washes the other,” said Martin Indyk, a distinguished fellow at the Council on Foreign Relations and a former U.S. special envoy to the Middle East during the Clinton administration. Buying of Treasuries could be a “manifestation of the closeness of the relationship.”
Indyk was quick to note he doesn’t have any particular inside knowledge on the situation and the Treasury market is a natural destination for Saudi Arabia’s petrodollars anyway. But he suggested that as tensions between the U.S. and Iran escalate, it also makes sense Trump would want the Saudis to boost production to keep oil prices in check. More output means more petrodollars, which can then be recycled back into Treasuries.
The numbers stand out. From the end of October 2016, the last month before Trump’s election, through April of this year, Saudi Arabia upped its ownership of Treasuries from $97 billion to $177 billion, Treasury Department data show. The 83% jump was by far the biggest among the top 12 foreign creditors in percentage terms. (The U.K., a banking center whose figures are seen as a proxy for hedge funds and other global investors, had the biggest absolute gain. Its holdings rose from $207 billion to $301 billion.)
The Saudi Arabian Monetary Authority, which manages the country’s investments, didn’t respond to a request for comment.
The buildup is also noteworthy because of just how dramatically Saudi Arabia reduced its holdings in the months leading up to the election. In the first nine months of 2016, the kingdom slashed its ownership of Treasuries by almost 30% in its most aggressive retreat in over a decade.
https://news.yahoo.com/saudi-buying-u-treasuries-soared-220534702.html