Monday, August 17, 2009

June TIC data: returning to risk? Possibly, definitely Treasuries

I don’t know how Brad Sester did this every month. The Treasury International Capital System (TIC) is one of those reports where the headline number, a -$31.2 drop in foreign net accumulation of US assets in June, doesn’t give you a whole lot of information. One must dig and dig. Even the FT got it wrong
Foreign investors ramped up their purchases of US long-term securities in June, although China trimmed its holdings of US Treasury bonds during the month, according to data released by the Treasury on Monday.
As you will read below, China increased its holdings of longer-term Treasuries in June (i.e., bonds and notes), but dropped its T-bills. Overall, the June report is still all about risk aversion; but there are tentative signs that foreigners are slowly returning to risk (i.e., quality long-term assets).

Just for note, the data referenced in this post is found here (for the aggregate and country-level long-term flows), here (for the aggregate and country-level short term flows), and here (the press release).

The -$31.2 billion drop in net-US assets was dominated by a $71.3 billion accumulation of longer term assets ($90.7 billion of high quality Treasuries, bonds, agencies, and equities), a $19.5 billion drop in short-term dollar-denominated assets, and a massive $82.9 billion draw on cross-border banking flows. Over the quarter April-June, a grand total of -$136.8 billion in capital flowed out of the economy.

The $123.6 billion in long-term capital net-inflow was almost entirely focused on Treasury bonds and notes, $100.5 billion (T-Bills fell $11.3 billion in June). However, agencies, $5 billion, and equities, $19.1 billion, increased smartly, too. Core flows, net of the volatile banking series, grew $51.9 billion over the month.

The UK increased its holdings of long-term dollar-denominated securities by a large $49.4 billion over the month, almost all of it in longer-dated Treasuries, $45.7 billion, and a much smaller but rather sizeable $4.3 billion net purchase of US stock. The UK remains to be a net-monthly-buyer of agency debt, but increased its June holding by a small $500 million.

Japan grew its holding of US long-term dollar-denominated securities by $33 billion in June on a $32.8 billion purchase of Treasuries. It sold off agencies in June, and has been accumulating US stocks for some time, $24.4 billion in the last year.

China bought $25.7 billion in US longer term securities over the month, all in Treasuries, and dropped its holding of short-term T-bills by a huge $51.8 billion, its second monthly net-sale of T-bills in the last year.

Overall, bond foreign bond accumulation is still down over the year, while stocks are up. The agency sell-off continues, and Treasuries dominate. On the upside, though, the $23 billion June drop in accumulated short-term assets may be a harbinger of risk-taking in the future.

Rebecca Wilder

1 comment:

  1. The accumulation of short-term claims by foreigners is usually associated with dollar weakness, whereas the purchase of longer dated securites is evidence of dollar strength.

    But in the case of the exchange value of the U.S. dollar there will never be a bottom.

    ReplyDelete