Monthly TIC Data Observations

by: Tyler Durden

In order to attempt filling a recent vacuum in public TIC data aggregation and analysis, Zero Hedge is starting a monthly TIC report, highlighting the notable disclosures by the Treasury International Capital System. Tuesday's TIC press release can be found here - in brief:

Net foreign purchases of long-term securities were $90.7 billion.

  • Net foreign purchases of long-term U.S. securities were $123.6 billion. Of this, net purchases by private foreign investors were $105.2 billion, and net purchases by foreign official institutions were $18.4 billion.
  • U.S. residents purchased a net $32.9 billion of long-term foreign securities.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $19.5 billion. Foreign holdings of Treasury bills decreased $11.3 billion.

Main highlights between the lines:

Foreign purchasers bought a total of $104.2 billion in Long Term securities, consisting almost entirely of treasuries ($100.5 billion). Gross agencies purchased were $5.1 billion, offset by $13.7 billion in paydowns for a net agency reduction of ($8.7) billion. Net Corporate Bonds also declined by a total of ($6.8 billion). Agencies and Corporate Bonds saw declines in foreign holdings in May and April as well. Corporate stock purchases peaked at $19.5 billion in June, after being positive by $16.7 billion in May and $4.6 billion in April.

Chinese purchases of Long-Term Treasuries were sizable at $26.6 billion (including ongoing sales of Agencies and Corporate Bonds for a third month in a row). Chinese treasury purchases in June were stronger than in May and April. It is worth pointing out that while shifting into Long Term securities, China also sold $51.7 billion of Short Term Treasuries (T-Bills), a significant change from prior periods, after it purchased $34 billion Bills in May and sold $14.8 billion in April. Net, China sold $25 billion of treasuries in June, reducing its near maturities and purchasing more long-dated bonds, presumably to take advantage of the higher 10/30 Years yields throughout June.

Surprisingly, the UK purchased the largest amount of Bonds in June, at $45.7 billion, while also purchasing $500 million in agencies, selling $1.1 billion in Corporate bonds, and buying $4.3 billion in corporate stocks.The UK previously purchased $14.2 billion and $22.4 billion of LT Treasuries in May and April, respectively. The UK also sold half a billion in Bills in June.

Japan was also a prominent purchaser of LT Bonds, at $32.8 billion, concurrently selling $2.9 billion in agencies, $2.1 billion in Corporate Bonds and $1 billion in Corporate Stocks. In May Japan sold a total of $4.9 billion in LT securities, with $8 billion in LT Treasuries offset by $2.1 billion in Agency purchases.

In summary - the trend is an accelerating Chinese lack of interest in near-term securities, offset by a moderately increasing appetite for the far end of the curve. In June the UK and Japan compensated for LT Treasury purchases (and of course the Fed was there with POMO to mop up any remaining supply). July data will be very interesting, to see if there was any marked foreign participation in Corporate Stock purchases as the stock market ramped higher by 12%.

As the chart below demonstrates, over the past decade foreign LT rolling LTM purchases have declined dramatically, with the total Agency drop now reaching $184 billion, roughly half a trillion decline from the peak. No wonder the Fed is much more concerned with filling the MBS/Agency vacuum than that of Treasuries: as is evident below, overall there has not been a substantial shift away from Treasuries (yet). Additionally, foreigners have sold over half a trillion in Corporate Bonds since the peak of the credit bubble. In total, since June 2007, Total Long-Term Foreign Holdings have plummeted by over $1 Trillion, across the four primary categories. (chart is gross - does not include agency paydowns, and thus likley understimates the total Agency reduction).

Another interesting data series is the purchase of foreign securities by US citizens: the emerging market bubble in 2008 has obviously peaked, and with a ($32.9) billion decline in June, the repatriation of capital by US residents is accelerating.