Reuters Economic Reporting Incompetence (with Some Racism Thrown In Too)

Here’s the Reuters headline: “Foreign buyers find U.S. Treasuries less appealing”.

Do they now. And why should we care?

First off, I’d say there’s some racism here. Did you know that “foreign buyers” are different from “buyers”? I think in other contexts that sort of nuance is called dog whistling. Why is it acceptable in this case?

Secondly, with bonds, prices and interest rates go in opposite directions. So if demand is shifting left because buyers are less interested, we should see a price drop and an interest rise. Yes, that it is in the data, but recall that raising interest rates has been the policy of the Federal Reserve for 3 years now. Let’s walk through that:

• Intentional policy choice to raise the federal funds rate (usually this is done by shifting the supply of Treasury bonds to the right, inducing buyers to buy more without changing their preferences)
• Federal funds rate rises, and other rates, like those on Treasury bonds follow suit.
• Quantity of Treasury bonds exchanged goes up.

Along some dimensions, this is observationally equivalent to this story:

• Many buyers, who happen to be mostly foreign, each think independently yet somehow do change their preferences for Treasury bonds, predominantly in one direction, in a way that shifts demand to the left.
• Treasury bond prices fall, and their interest rates rise.
• Quantity of Treasury bonds exchanged goes down.

There are a couple of ways to differentiate these.

One would be to look for an intentional policy (check) vs. some groundswell of changing sentiments about a particular sort of asset (possible, but not easy to do). That points towards the first explanation.

A second way would be to look at quantities of bonds sold. The Reuters article actually spends almost all of its space talking about how the quantity of bonds transacted has gone up. That points strongly towards the first explanation.

But Reuters is not giving up that easily (after all, they’ve got costs sunk into their nonsensical reasoning):

Analysts say the drop in Beijing’s holdings stems in large part from spending foreign currency reserves to defend the weakening yuan amid signs of slowing domestic growth, although they do not rule out the possibility it might also be retaliation for Trump’s barrage of tariffs on Chinese goods.

“Holdings have declined over the past four months and may continue to do so as the ongoing trade war sours the relationship between China and the U.S. and thus reduces their appetite for Treasuries,” Jefferies LLC senior money market strategist Tom Simons wrote in a research note.

And this:

In the case of Japan, the rising expense to hedge U.S. investments due to the strong dollar is seen as the main culprit.

Neither of those reflects a change in preferences. Rather, they show a change in priorities due to more primary issues (wait … what … you mean like the sale price on cola didn’t draw the buyer’s attention when they came to the store for milk … yes, of course, that’s exactly what I mean).

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Of course, there’s a reason for Reuters convolutions. Trump did it.

(Hey, isn’t bringing him up a microaggression, or a trigger, or a dog whistle, for whole bunches of people who rely on the legacy media)?

But I digress. Here’s some quotes:

NEW YORK (Reuters) - Some overseas investors appear to be taking a pass on U.S. debt securities just as the administration of President Donald Trump embarks on a record sale of Treasury bills, notes and bonds to pay for its big tax cuts and spending increases.

Yeah … that’s from the first line … just in case you might miss where they’re coming from.

Let’s see what we’ve go there. “Trump” (check). “Record” (check). “Big” (check). Last I checked, taxes and spending were the Congress, not the White House (no denying that Trump wanted this, but he didn’t do it). Oh, and we cut tax rates, and reformed some taxes, but it’s not clear if that will actually lead to a cut in revenue; ah yes, that subtle distinction that’s so hard for the legacy media to admit to). And then there’s the record. Journalists love records. You know what? That’s a trigger word too. I set a record just this morning for number of breakfasts eaten in my lifetime.

To their credit, that first paragraph is the only one with the Trump trigger. The rest of the article is just weak economics, and stunningly contains not one word related to Federal Reserve policy … ‘cause … you know … it’s not like they influence bonds rates and prices or anything like that.