Doug Noland: on bond flows, leveraged community starting to bail?
Dollar sentiment was surely not helped by the Treasury’s release of September “Transactions with Foreigners in Long-term Securities.” Monthly Net Purchases, having averaged almost $76 billion over the preceding six months, collapsed to a measly $4 billion. I will not place too much emphasis on one month’s data, but this release highlights the risk of broad-based waning demand for U.S. securities. Averaging $16 billion monthly through August, net purchases of Agency debt reversed to a negative (liquidation) $3.2 billion. Foreigners also liquidated $6.3 billion of U.S. stocks, while purchasing net $5.6 billion of Treasuries and almost $20 billion of corporate bonds (including ABS). Year-to-date, Treasury and Agency purchases have accounted for 63% of total purchases, this compared to 51% during 2002 and 36% for 2001. U.S. “risk assets” are out of favor.
The financial centers of Japan, the UK (London) and the Caribbean traditionally account for a large percentage of “foreign” purchases. What role the global leveraged speculating community plays in these transactions (as opposed to true investors) we will likely never know for sure. But it is interesting to note that purchases from the UK were normal during September (around $12 billion), while the Caribbean turned from a buyer ($15 billion monthly avg. over the preceding 5 months) to a net seller of almost $11 billion. The Caribbean saw agency liquidations of $8.7 billion. It is fascinating that the Caribbean accounted for 66% of total agency transactions during September, although down somewhat from the almost 75% from May through August. Japan had net Treasury purchases of $21.5 billion during September, with a y-t-d monthly average of $9.2 billion. This compares to last year’s average of $2.1 billion. Year-to-date, Japan’s purchases of U.S. long-term securities have jumped to $10.3 billion monthly compared to 2002’s $6.0 billion. However, net monthly Agency purchases have declined about 20% to $1.9 billion. Total Japan, UK, and Caribbean net purchases have averaged $30 billion monthly this year, compared to about $22 billion last year. The monthly average of net Treasury purchases has more than doubled to $13.5 billion. |
