The US Treasury has revealed for the first time the scale of government debt held by Saudi Arabia and other oil producers, whose fiscal health has been hit hard by the rout in crude prices since the summer of 2014.
Saudi Arabia, the world’s biggest oil exporter, held $116.8bn of US Treasury debt as of March 2016, the Treasury said on Monday. That places the kingdom as the 13th largest foreign holder of the $13.3tn Treasury market, behind the likes of India, Belgium, Taiwan, the UK, Switzerland and Ireland.
China with a $1.24tn portfolio and Japan with a stake of $1.14tn dominate the list of foreign holders, who in total comprise just under half of the world’s largest sovereign debt market.
Fears emerged earlier this year that against the backdrop of rising budgetary pressure thanks to sliding oil prices, Saudi Arabia might begin to shed its holdings, which were believed in some quarters to be sizeable.
Oil prices have dropped from a July 2014 high of $115 per barrel to less than $30 per barrel in January this year, before a recent recovery towards $50 a barrel this month.
The scale of the Kingdom’s holdings, while substantial, is not seen posing a liquidation risk for the Treasury market. According to Treasury data, Saudi’s holdings have risen from $102.8bn over the past year to March.
“That is not to suggest $116.8bn isn’t a significant amount, but compared to the largest holders, it doesn’t point to systemic risk for Treasuries should oil prices fail to recover,” says David Ader, strategist at CRT Capital. “Nonetheless, it’s an interesting data point as we contemplate the potential ramifications from the current state of the global energy market.”
Previously, oil producers were lumped together in a broad category of “oil exporters” — which also included Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, the United Arab Emirates, Algeria, Gabon, Libya and Nigeria. The Treasury tweaked its data after a freedom of information request by Bloomberg.
As of February, the oil exporters’ group held a combined $281bn. Based on the greatest disclosure, the UAE holds $62.5bn and Kuwait has $31.2bn. The UAE’s holdings since March 2015 have eased from $79.5bn while those of Kuwait are streaky over the same period.
The Treasury has also dispensed with the official classification of Caribbean Banking Centre, replacing it with Cayman Islands. Long seen as a proxy for Treasuries held by hedge funds, Cayman accounts for $265bn, the third largest holding.
Of the $6.3tn in Treasury debt held by foreign investors, official institutions such as central banks account for $4.07tn. The hefty level of foreign ownership of Treasury paper has been highlighted by some as a cause for concern.
Bouts of weakness among emerging market currencies in the past year have prompted some central banks to sell reserves in order to protect their foreign exchange rates.
China’s official holdings have fallen slightly over the past year from $1.261tn, while Brazil has eased from $261bn to $246bn. Mexico has slimmed its holdings down from $85bn to $71.6bn.
However, official figures for countries reflect flows via US-based custodians and broker/dealers. As such, the figures do not reflect actual holdings by specific countries. Much of the UK’s holdings of $227bn are believed to be held by other countries which use the City as their buyer of Treasuries.
In the past year, for example, Ireland has shot up the list of foreign holders, with a current tally of $264.3bn, due to a number of global companies attracted by lower corporate tax rates.
Get alerts on US Treasury bonds when a new story is published