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Foreign Holdings Of US Securities Surge In July, China Again Buyer Of Treasuries As Japan Closes In On Second Place

Tyler Durden's picture




 

Today's TIC data came in showing a surprising and robust inflow of foreign capital into the US in the month of July, with a net inflow of $61.2 billion on expectations of $47.5 billion, and a solid jump from last month's $44.4 billion. On a gross basis, purchases of a total of $74.8 billion in US securities consisted of $30 billion in Treasurys, and $17.3 billion in Agencies, but more surprisingly $13.9 billion in Corporate Bonds and $12.5 billion in Corporate Stocks. The last two categories were outliers consider the prior two months had seen outflows in foreign holdings of both bonds and stocks (a total of $27 billion across the two categories for both months). What may or may not come as much of a surprise is that of the $74.8 billion in total Long-Term investments, pretty much all of it came from capital originating in Japan ($29.7 billion) and the UK ($30.9 billion). Ah, good old UK, which as a covert depot for central bank operations, is now no longer content with accumulating Treasurys at a torrid pace, now holding a total of $374.3 billion (a $12 billion increase M/M), but is also aggressively bidding up bonds and stocks. In July the UK (which itself can barely fund its own QE-prompted deficit funding), also bought $12.4 billion in corporate bonds and $2 billion in corporate stocks.

Chart showing gross flows by product category on a monthly basis:

Tracking flows in and out of corporate stocks: July saw over $10 billion in inflows into US stocks, offsetting the surge of the endless domestic equity redemptions which as everyone knows, is confirmation that Americans have largely said enough to the lie that is the US stock market. It appears dumber foreigners will need some time fo learn the same lesson.

Total holdings for China show that after dumping a lot of USTs in June, China once again tentatively bought $3 billion, bringing its total to $846.7 billion.

Yet the most important players in July were Japan and, of course, the mythical buyers that continue to operate out of the UK.

Change in Japan holdings, which now at $821 billion are just $25 billion away from China's total, and on track to making Japan the second largest foreign holder of US Bonds.

And, last, the pandemonium which is the UK. The blatant accumulation of bonds using UK proxies is just getting ridiculous.

 

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Thu, 09/16/2010 - 11:10 | 585314 hedgeless_horseman
hedgeless_horseman's picture

UK.  US.  We are all Oceania, now.  And, we've always been at war with Eastasia.

Thu, 09/16/2010 - 11:38 | 585396 carbonmutant
carbonmutant's picture

Geithner testifying before congress was quoted by Reuters this morning as saying, "China’s currency policy does not pose systemic risks but it does pose problems"... ??? Huh?

Thu, 09/16/2010 - 11:10 | 585316 SheepDog-One
SheepDog-One's picture

Musical chairs.

Thu, 09/16/2010 - 11:16 | 585327 vote_libertaria...
vote_libertarian_party's picture

Is it another example of 'time for fear of Euro crashing' boat rocking again?

Thu, 09/16/2010 - 12:44 | 585329 MarketFox
MarketFox's picture

TT and CD are two of the "heads that belong on poles"....

 

And one thing to be sure about...if one does not make it...they ship out their wealth to import it...

WMT...COSTCO...DOLLAR STORES....will be lining up at the US CHINA owned docks....and money will be shipped out ....just like oil money....outside the US....

 

China will ride it up and down...just like owning "cows on grass".....

 

The POLY Jokers have long time sold out the US.....and care about one thing....themselves.....

Thu, 09/16/2010 - 11:16 | 585330 HarryWanger
HarryWanger's picture

That explains the steady volume with the large mutual fund outflows. I knew there had to be something missing in that equation. Looks like we found it.

Thu, 09/16/2010 - 11:19 | 585336 RobotTrader
RobotTrader's picture

Yep.  Virtually 95% of all Treasury purchases by our foreign debt enablers are still in a winning position.

There is nobody that gets whipped up into a frenzy like a Chinese when he's winning a speculation.

And right now, the Chinese PBOC officials are high-fiving.

All dips in bonds are going to be bought with the utmost urgency.

Thu, 09/16/2010 - 11:23 | 585351 caferrell
caferrell's picture

This is the only way that they can sell us stuff. But when does the moment come for China and Japan to consider the risk of US Treasuries too high to warrant selling us more plastic Wallmart products?

Thu, 09/16/2010 - 12:55 | 585593 MarketFox
MarketFox's picture

This will happen when the people that used to shop at Barney's and Bergdorf Goodman....start to shop at WMT.....

Thu, 09/16/2010 - 11:31 | 585370 carbonmutant
carbonmutant's picture

What else are the Japanese suposed to buy with all those dollars?

Thu, 09/16/2010 - 11:38 | 585395 hedgeless_horseman
hedgeless_horseman's picture

They already own Hawaii.

China has the options on Australia and Africa.

Yen?  LOL.

Thu, 09/16/2010 - 12:07 | 585475 Battleaxe
Battleaxe's picture

That giant sucking sound you hear is Geithner under chairman Zhou's desk.

Thu, 09/16/2010 - 12:17 | 585507 Catullus
Catullus's picture

Forward to dr krugman. Re: wrong again, asshole

Thu, 09/16/2010 - 13:58 | 585814 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

When the Japanese are all happy speaking Chinese, they will sell their USTs.

What a nice strategic flip. Japan intervenes and sells JPY, prints more, sells more, buys USTs.

So now the FED and Japan are both buying big.

Since JPY had appreciated over 10% YTD vs the USD and it is still about 8.5% stronger, you can say that Japan essentially took one for the team regarding free float. The US can of course not be seen participating in the JPY invervention. Nor Europe. But in perspective, the RMB has appreciated a little over 1% against the USD in the same time. And the Chinese want to be a reserve currency? In your dreams Chairman Mao.

One way or another, the RMB is going to be revalued upwards versus the USD. Japan can print an infinite amount of JPY and since the transactions are sterilized by buying USTs, everyone is happy. They can essentially buy the Chinese out of their UST position. The weaker JPY will make them that much more competitive and they can export more to US and Europe, not to mention BRICs. 

Trade war w/ China?

Thu, 09/16/2010 - 14:19 | 585851 wintermute
wintermute's picture

The UK purchases are not a Fed conspiracy.

The majority of UK buying is Middle-East oil revenue (remember oil is priced in dollars) being recycled from zero-coupon FRNs to coupon-paying Treasuries.

The money might not stay in Treasuries forever - but they are the first stage in "banking" those oil profits.

Consider. The US is the world's largest oil-consumer and is not only running a government fiscal deficit, but also a national trade deficit. Oil is being paid for with IOUs. London is the hub for a lot of Middle-East financial flows.

Thu, 09/16/2010 - 14:32 | 585903 godfader
godfader's picture

Didn't that nutcase Michael Pento scream on CNBC how the Chinese stopped buying? LOL

Thu, 09/16/2010 - 14:46 | 585928 golemxiv
golemxiv's picture

A question for anyone with greater knowledge of these things.  Does it make sense for the BoE to accumulate US debt as a way of helping UK banks who might need dollar funding and to do so without having to tap Fed swaps?

Thu, 09/16/2010 - 16:34 | 586208 spartan117
spartan117's picture

Tyler,

Any follow-up to Stratfor's rumor that China was short $3Trillion or whatever USTs?  I think a follow-up deserves its own thread.  I still call BS on that rumor.

Thu, 09/16/2010 - 18:05 | 586483 tom
tom's picture

The monthly TIC figures catch less than two-thirds of China's activities. The monthly figures for July 2008 to June 2009 found $240 billion of Chinese purchases, annual revision for June 2009 found another $140 billion.

Thu, 10/07/2010 - 05:53 | 631606 Herry12
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