China Still Buying Treasuries, Demand Had Waned Elsewhere (Econompic)

Wednesday, August 17th, 2011

via Econompic Data

The WSJ details:

Private foreign investors sold a record amount of U.S. Treasurys in June as the U.S. debt-ceiling debate intensified.

While it may be easy to blame selling on the debt ceiling issue, that really wasn’t an issue until July. The broader selling likely occurred due to issues that were unrelated to the debt ceiling (supply of debt coming to market, the end of the QEII program, expectations for decent global growth).

That said, the scale of the actual selling is interesting (back to the WSJ).

Private foreign net purchases of long-term Treasury bonds and notes fell by $18.3 billion in June, following a $16.4 billion increase in May, according to the monthly Treasury International Capital report, known as TIC. The previous record drop was set in June 2000, when private foreign investors sold $16.5 billion in Treasuries.

Sales were concentrated in the Caribbean (i.e. insurers / private wealth). The way I would interpret this is that these investors sold Treasuries UNTIL the debt ceiling issue, which combined with concerns over Europe caused the flight back into Treasuries (i.e. if there was no debt ceiling issues, there would have been less demand in July / August).

Immune to this whipsaw was China.

China’s holdings actually rose in June, by $5.7 billion to $1.166 trillion, following net buying of $7.3 billion in May. Analysts caution the data may not reflect the full spectrum of China’s activity in the market, however. The Treasury recently adjusted its estimate of China’s holdings based on use of proxies in other countries.

The below shows the combined purchases by China (direct) and the UK (where China purchases indirectly).

Until something drastically changes, expect a continued rise in the above chart regardless of net purchases / sales from other foreign entities.

Source: Treasury

Copyright © Econompic Data

Tags: Caribbean, China China, Copyright, Debt Ceiling, Entities, Europe, Foreign Investors, Full Spectrum, Global Growth, Private Wealth, Program Expectations, Proxies, Treasuries, Treasury Bonds, Treasury International Capital, Treasurys, Trillion, Whipsaw, Wsj
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Chinese Stealth Treasury Purchasing Continues

Thursday, January 21st, 2010

This article is a guest post by Tyler Durden, of ZeroHedge.com.

A week ago we speculated that the mysterious “direct auction bidder” may be China, purchasing Treasuries  indirectly though offshore money centers. Yesterday’s Treasury International Capital data confirms that there is something strange happening with China treasury purchasing, and adds more fuel to the speculative fire that China is in fact acquiring Govvies through less than overt pathways.

The TIC data released yesterday showed a surge in Treasury buying, with foreigners purchasing $118.3 billion in Long-Term Securities (Bonds and Bills). As the chart below demonstrates, this was a record monthly purchase amount in the LTM period.

What was strange about this data point, is that European investors accounted for well over half of purchases, at $68.1 billion – also a record monthly amount. Of this, the UK accounted for a whopping $50.6 billion, and France also buying a sizable $11 billion. Accounting for all Bill sales in November, foreigners offloaded $18.9 billion in short-term securities yielding next to nothing, after selling $38.3 billion in October. Furthermore, as we speculated, paydowns added to run from short-dated securities: $134 billion in bills were paid down in October and $8 billion in November. While forigners no longer flock to Bills, their holdings of the low-yielding asset class is still elevated at well over pre-crisis levels:

On this backdrop, China was a purchaser of just $14.9 billion in Notes and Bonds, while at the same time it sold $24.2 billion in Bills, for a net outflow of $9.3 billion. This is confirmed by consolidated holdings data, which saw total Chinese holdings drop to $789.6 billion in November from $798.9 billion in October. China’s aversion to Bills is indicated in the chart below, yet it still has a long way to go before it reaches its 2007-2008 holdings of the short-end. In November China held $109 billion in Bills, down from $133 billion in October, and a peak of over $200 billion in May 2009. As the country’s Bill portfolio matures, we expect an accelerating reduction in China’s holding of Bills, especially if ongoing selling interest does not decline.

We will provide a more in-depth analysis of global fund flows in November later, although we are troubled by some odd revision to October data, particularly as pertains to short-term treasury holdings by the Channel Islands and the Isle of Man, which we are currently trying to reconcile.

Focusing back on China for the moment, among other things the country was a net seller of agency debt for the 17th month in a row, offloading $3.4 billion in the class. China also sold $146 million in corporate debt while buying $393 million in US corporate stocks: a token amount on both sides.

Yet what is most odd about China, as we pointed out previously when discussing Chinese FX reserves, is that while China grew its reserves by $55.7 billion in October and $60.5 billion in November, over the same period, it saw its net holdings of US debt decline by 9.3 billion: a $126 billion differential.

As has been widely speculated, China could simply be diversifying away from the dollar, although a $126 billion net purchasing of a UST alternative would likely have had much bigger repercussions on commodity prices globally in the October-November time period. Yet, as Market News points out, this fact does not explain the stability of the CNY, coupled with the ongoing positive trade surplus. Market News’ explanation:

First, it is possible that China is making purchases through other financial centers. The UK’s holdings of US Treasuries rose USD47.4bn in November, and Hong Kong’s holdings also ticked up. If a portion of those holdings can be attributed to China, that would explain part of the disparity between strong FX reserve growth and weak growth in Treasury holdings.

Second, Federal Reserve custodial data, which has a different coverage to the TIC data, shows a solid increase in US Treasuries held in custody for foreign official institutions in October and another smaller increase in November.

Zero Hedge will analyze Fed custodial account data shortly, to determine the nature of the noted discrepancies. Yet the original question does stand: if indeed China is accumulating Treasuries in a covert fashion that bypasses a “smoking gun” appearance on TIC data, why is it doing so? Who stands to benefit from this kind of indirect purchasing via “direct bidders”? The explanation that public and private bidders originating from the UK are accumulating US debt deserves much greater scrutiny: the buyer is certainly not the BOE, which has had its hands full monetizing its own gilts for the past several months (and yes, unlike the Fed, the BOE has no problems admitting it is directly monetizing). And Europe in general is now a funding basket case, exemplified by the events in Greece: the last thing European Central Banks will worry about is funding the U.S. exploding budget deficit when they have a ticking time bomb in their own back yard. So whether the U.K. is merely a hub for offshore purchases of US bonds, whether originating from China or Petrodollar countries, is unknown. If the buyer indeed is China, we raise the same question we did a week ago:

The Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher than the disclosed $799 billion.

If true, this would imply that the UK “holdings” of $278 billion are highly suspect, as the country likely own a fraction of this total, with the balance held by Chinese and Petrodollar interests.

One thing is certain: if someone is trying to hide their purchases, this is never indicative of a good thing, and much more analysis must be performed to determine just why international fund flows need to be below the radar.

Tags: asset class, Auction Bidder, Aversion, Backdrop, China, Commodities, Consolidated Holdings, Crisis Levels, Emerging Markets, European Investors, Flock, Foreigners, Money Centers, Offshore Money, Outflow, Pathways, Purchaser, Stealth, Tic, Treasuries, Treasury International Capital, Tyler Durden
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Rebecca Wilder’s economic updates (May 14–21): still bad, but flood of shocking reports ebbs

Sunday, May 24th, 2009

This post is a guest contribution by Rebecca Wilder*, author of the of the News N Economics blog.

This week was a little light on global data. Given that the trade data is looking “better” in some areas (which really means not falling as quickly in some cases, see this post and this post), it is likely that Q1 will be the worse quarter for many Asian economies who rely heavily on exports for growth. It’s bad, though, with Japan, Taiwan, and Singapore all falling 9% or more over the year! Inflation is slowing substantially in some areas, negative in others. And finally, it looks like US capital markets got a small bump in March, as foreigners returned to risk. Overall, the global economic reports remain in the red, but the shockingly bad reports are fading.

GDP in Asia: waiting to exhale

The chart illustrates annual GDP growth through Q1 2009 for Hong Kong, Japan, Taiwan, Indonesia, and Singapore. Looks bad, but Indonesia is showing some resilience, although GDP is now growing at its slowest pace since January 2004.

More scary inflation charts: disinflationary pressures strong – deflation in some

The chart illustrates annual inflation across key economies through April 2009. The UK is an interesting case: the British pound has been taking a beating and pressuring prices, and the consumer price index is holding on (can’t say the same for the retail price index) better than in other economies (US inflation now negative for two consecutive months). Today, though, S&P downgraded the UK outlook to negative, and the sterling took a hit; wonder what that will do to prices?

Amid a calm developing in capital markets, foreign investors returning to US-denominated risk

The chart illustrates the 12-month rolling sum of net capital inflows through March 2009, as reported by the Treasury International Capital data (TIC). Good thing for the Treasury, which is planning on running $trillion deficits in coming years, that foreigners might buy their notes. In March, foreigners showed a slight shift toward risk, with net long-term flows growing for the first time over the year since the end of 2008 (second time over the month).

Source: Rebecca Wilder, News N Economics, May 21, 2009.

Tags: Asian Economies, Capital Inflows, Capital Markets, Consumer Price Index, Deflation, Economic Reports, Economic Updates, Foreign Investors, Foreigners, GDP, GDP Growth, Global Data, inflation, Japan Taiwan, Resilience, Retail Price Index, Shocking Reports, Treasury International Capital, Trillion Deficits, Waiting To Exhale
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