from Follow the Money

The July TIC data

September 19, 2007

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United States

Budget, Debt, and Deficits


A few quick observations on yesterday's TIC data.

  1. Foreigners sure didn't like US long-term debt in July.   The "quality" of the financing of the US deficit fell dramatically.   Almost all the inflows, including almost all the net official inflows, were short-term.  Foreign demand for US corporate debt -- a category that includes mortgage-backed securities and CDOs -- was way down.  Indeed it was the lowest since 1995.    That is unlikely to have changed in August or September.  Stephen Johnson of Reuters quoting David Powell of IDEA: "

    Net purchases of U.S. corporate bonds hit their lowest level since December 1995 and purchases of agency securities, such as those issued by home loan funding company Fannie Mae (FNM.N: QuoteProfile , Research), also fell sharply. "The real culprit here is the credit crunch, which has caused a drastic slide in purchases of corporate and agency bonds, and I think it's only a taste of what's to come because the real problems didn't hit until August" said David Powell.

  2. The fall in official purchases of long-term US Treasuries in the July data is a bit misleading.  Official actors -- basically central banks -- bought T-bills rather than long-term bonds.   Long-term Treasury holdings were down by about $7b, but holdings of short-term T-bills were up by $15b.  And I would bet that a decent share of the $16.4b of long-term Treasuries that private actors in the UK bought in July ended up in central bank hands.

  3. Moreover, the fall in long-term holdings was almost certainly driven by Norway's sale of $12-13b of long-term Treasuries, and those sales aren't real "sales."  Norway periodically has a big impact on the data as a result of one of Norges Bank's trading strategies.  Norway's short-term holdings (specifically its "other" short-term holdings) increased by almost as much as its long-term holdings fell. 

  4. China's modest purchases of long-term debt -- it only bought $3.8b in July, mostly Agencies and corporate bonds - were offset by a fairly strong -- $11.5b -- increase in its short-term holdings.  That increase includes a $3.3b increase in its t-bill holdings, which offset the $0.6b fall in its long-term Treasury holdings.  The overall $15.4b increase in China's US holdings though remains small relative to China's likely July reserve growth.

  5. The biggest buyer of Treasuries right now is Brazil.  Its central bank (I would assume) bought $10.9b of long-term Treasuries in July.   Over the last twelve months, Brazil's total holdings of Treasuries are up $73b.  Who would ever have guessed that Brazil would provide two times as much "official" financing to the US in a year as the IMF provided to Brazil back in 2002 and 2003?

The underlying data I used for this analysis all comes from various bits of the Treasury International Capital System's web site.