Interest Rate Roundup

Thursday, February 15, 2007

R-uh, R-oh: TIC data disappoints

That's me trying to sound like Scooby Doo, in case you're wondering about the "R-uh, R-oh" reference. I say "Uh Oh" (in dog language) because the December Treasury International Capital report looks ugly. The details ...

* Total foreign purchases of U.S. stocks, Treasury debt, and other bonds plunged to a net $15.6 billion in December from $84.9 billion in November. Forecasters were looking for $60 billion in net purchases.

* A broader measure of international money flows looked even worse -- it FELL by a net $11 billion, vs. expectations for a gain of $70 billion.

* Foreign private buyers were much, much less active buying our assets, while foreign official buyers (central bankers) picked up the pace from November.

* By country, Japanese holdings of U.S. Treasuries rose $6.9 billion, Chinese holdings rose $3.1 billion, and U.K. holdings jumped for a second straight month -- gaining $16.5 billion. There was big selling in the Caribbean region (that's a sign of hedge fund activity, since many operate via offshore banks located there). Other sellers included some smaller countries in Europe, like Switzerland, Ireland, and Italy.

As you might expect, the dollar is getting whacked on the news. Bonds are popping. The pattern lately has been for these two markets to trade inversely -- i.e. when bonds rally in price, the dollar falls in value.


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