There’s a big mystery in the bond market. Solving it could be the key to figuring out why U.S. government bond yields have remained so low.
Sleepy Belgium has been buying American bonds more than anyone else, more than doubling its holdings in the last year.
The trend is reflected in monthly data from the U.S. Treasury on who holds American debt overseas. Belgium’s holdings in May were 187% higher than they were a year prior and now stand at $362 billion.
The country known for chocolate and waffles has leaped past other major holders like Taiwan, Switzerland, and many of the oil-exporting nations. Now Belgium ranks behind only Japan and China, which each have more than $1.2 trillion of U.S. debt.
The most popular theory is that the Chinese have been routing money through Belgium.
“Very rarely do foreign investors buy Treasuries for yield,” said John Stoltzfus, chief market strategist for Oppenheimer.
Instead, he said, they buy them for safety or, in the case of central banks, to help influence their own currency prices by tinkering with demand for dollars. As Belgian Treasury holdings jumped, the dollar price for Chinese yuan fell.
One player in this great Belgian mystery is clearinghouse Euroclear, which holds onto securities like Treasuries for clients, including central and commercial banks. If they hold onto bonds for the People’s Bank of China, it would show up in the Treasury data as Belgian instead of Chinese. The company declined to say outright if that is the case.
“It’s not unreasonable to assume that we’re behind it because we’re an international securities depository and our role is to hold finance securities for final institutions all over the world,” said Aki Vlahodimos, a Euroclear spokesman.