TIC Data Color

The TIC data for Aug was in line with expectations. Long-term flows rose to $28.6 bln from $15.3 bln in July. Although there is much talk about demand for short-term US securities, net purchases of long-term assets has risen from about $8 bln in Q4 08 to $49 bln in Q1 09 and $82 bln in Q2. The July and Aug pace is about $45 bln, threatening to break the streak.

Overall net TIC inflows was $10.2 bln, only the second positive report of this year. The other one was in March. There is not much of a dollar reaction. The risk is that the dollar sees its overnight gains pared now ahead of the weekend.

China has bought US Treasury notes and bonds steadily since March. In August, it bought $15.3 bln after $26.6 bln in July. The purchases in Aug are in line with the 5-month average (~$14.2 bln). It appears to have sold or allowed to mature short-term Treasury securities, like bills. Chinese investors sold US agencies (a chunky $2.1 bln, which is a little less than the combined sales in June and July).

Japanese investors continued to buy long-dated Treasury paper. The $3.7 bln purchased adds to the $32.7 bln bought in July. Japanese investors also bought roughly the same amount of Agency bonds in Aug ($2.5 bln) as they sold in July ($2.8 bln). US corporate bonds and stocks were also bought by Japanese investors.

In total Asian investors bought almost $21 bln of US Treasury notes and bonds in August on top of the $60.4 bln purchased in in July. The purchases in these two months was about equal to the combined purchased in in the prior four month period.

For their part Europeans bought $7.8 bln US Treasury notes and bonds after $48.6 bln purchased in July. The July-Aug purchases were about 1/3 more than the combined total of the prior 4 months. This includes the fact that Russia bought $1.6 bln of US Treasury bonds and notes. In recent months, Russia has been a consistent seller of long-term Treasuries.

Also, noteworthy was the fact that Europeans seemed to shift out of US corporate bonds (net sellers of $12.8 bln) and into US equity ($16.4 bln). The direct dollar impact may be inconsequential, but there may be an indirect impact as equity investment often is not hedged to the same extent as fixed income investments.