TIC Data Confirms China Bond Sell Off Continues; Foreigners Dump Corporate Bonds And Stocks

Today's Treasury International Capital data had some unpleasant disclosures about the flow and size of international capital flows. The gross headline number of inflows was as expected higher, coming in at $44.4 billion, consisting of $33.9 billion in net foreign purchases of long-term securities ($16.6 billion purchases by private investors and 17.3 billion by official institutions), as well as $10.4 billion in sales of foreign securities by US individuals. This brought total foreign holdings of US securities to just over $4 trillion for the first time ever, or $4,009 billion. So far so good, however looking at the composition of purchases, it appears that foreigners were frontrunning the Fed already in June - they bought $33.3 billion in LT Treasuries, and $18.2 billion in agencies, precisely the categories that the Fed would be monetizing, even as they sold $13.5 billion in corporate bonds (the highest amount since January 2010), and $4.1 billion in corporate stocks, the most since July 2008. What are foreigners seeing that all the mutual funds are also seeing (with 14 straight outflows from domestic equity funds), yet the HFT, Primary Dealer group is so stubbornly ignoring? Most importantly: Chinese Treasury holdings dropped to a 1 year+ low of $843.7 billion, following reductions in both long-term and short-term treasurys. China now has almost $100 billion less in USTs compared to the peak of $940 billion in July 2009. One wonders what China is buying with the sale/maturity proceeds.

Below is a chart of the monthly foreign flows by category: after foreign LT purchases surged to a gross record of $159 billion, this number has sine plunged to a mere $33.9 billion. Also note the accelerated selling in corporate stocks and bonds by foreigners.

Focusing on the Big 3 foreign holders, below is the concerning chart showing China's declining holdings:

And the actual monthly flows: note the last two month of outflows.

Luckily, Japan has not been spooked yet: the country purchases a total of just under $17 billion in Long and Short-term Treasurys:

Obviously the covert activity via "UK banking centers" continues, as the UK continues its surge in UST holdings, now at a stunning $362 billion, compared to $91 billion a year earlier.

And a few other observations: it seems several European key banks saw a material expansion in their UST holdings, specifically Switzerland and Luxembourg, which increased their total holdings by $15.7 billion and $21.2 billion, to $100.1 billion and $97.5 billion, respectively. The other notable seller: Oil Exporters, which dropped their UST holdings from $235.1 billion to $223 billion.