The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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July 17, 2007

US Assets: Still Looking Tasty

It appears that the appetite for dollar-denominated assets is not sated quite yet.  From Bloomberg:

International buying of U.S. financial assets unexpectedly climbed to a record in May as investors snapped up American stocks and corporate bonds.

Total holdings of equities, notes and bonds climbed a net $126.1 billion, from $80.3 billion the previous month, the Treasury said today in Washington...

Brad Setser does his usual fine job with the details: 

Demand for US equities and corporate bonds was particularly strong, which does suggest the persistence of private demand for US assets abroad.  Private investors tend to buy corporate bonds and equities; central banks tend to buy Treasuries and Agencies -- though that is changing.

What causes me trouble is the split between private and official purchases, and specifically the absence of any official inflows in the May TIC data.

In case you need visual confirmation:





Brad isn't buying it:

I have a hard time believing that. May was a record month for official reserve growth. China, Russia and Brazil all added to their reserves like crazy.   Those three together combined to add close to $100b to their reserves – and a host of other countries were adding to their reserves too. That money has to go somewhere...

... the Fed’s custodial data doesn’t show a comparable fall off in official demand in May (June is another story).   

The Treasury helpfully explains why the custodial data may differ from its own data:

    1. Differences in coverage: The most important reason for differences between holdings reported in the TIC and the FRBNY custody accounts is a difference in coverage. First, not all foreign official holdings of Treasury securities as reported by the TIC system are held at FRBNY. In particular, Treasury securities held by private custodians on the behalf of foreign official institutions are included in the TIC but not in the FRBNY figures. In this sense, the coverage of the TIC system is broader than that of the FRBNY custody holdings. Second, the custody holdings at FRBNY include securities held for some international organizations as well as for foreign official institutions. In this sense, the coverage of the FRBNY custody holdings is broader than the foreign official designation in the TIC system.

That description suggests advantage Treasury to me, but Brad offers other reasons for distrusting the official (that is, government) flows reported in the TIC data, and sticks to his guns on the belief that central bank diversification continues on.  I won't -- can't really -- argue.  But at the very least the latest report does little to vanquish the sense that global asset demand retains a strong attraction to the USA.

July 17, 2007 in Capital Markets , Trade | Permalink


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Congratulations David. I heard about your wonderful job as research director at the Atlanta FRB. I hope you will be able to continue to share your insights with us. Welcome down here to Atlanta.

Posted by: me | July 17, 2007 at 09:37 PM

Congrats. Hope you continue to blog. If not; thanks for the balanced insights.

Posted by: dd | July 17, 2007 at 09:57 PM

congrats Professor Altig. Stay away from the biscuits and gravy!

Posted by: jeff | July 17, 2007 at 11:17 PM

Dr. Altig -- I am behind the times, so I didn't realize congrats were in order until reading the comments. let me join the chorus.

With respect to the differences between the TIC data (the treasury also does the survey, so there are really two treasury data sources)and the FRBNY data, i would note the fourth reason for the discrepancy noted on the treasury web page:

"A fourth source of discrepancy arises because the TIC system of monthly net purchases or sales of long-term securities is specifically designed to capture only U.S. cross-border transactions. If a foreign official institution acquires a Treasury security from a private foreign entity on a foreign securities exchange and then has the security held in custody at FRBNY, reported custody holdings will increase. However, there will not be a corresponding TIC-reported foreign official purchase because this is not a U.S. cross-border transaction: it is a foreign-to-foreign transaction."

given that the survey data has consistently revised the TIC data on foreign purchases up -- and given that official reserve growth easily exceeded $100b in may, i would have to give the advantage to FRBNY here. Note that in the tic data showing foreign holdings of treasuries, there is a very consistent pattern -- the series is revised, and chinese holdings of treasuries go up (russian and chinese holdings of agencies also go up, but it isn't as visible) and the UK's holdings go down.

the uk's holdings then build up (in the tIC data) over the course of the year and then get revised down after the survey ...

that seems to me to be a pattern very consistent with 4) in the treasury explanation.

incidentally, i suspect foreign demand for US corp bonds -- a category that includes "private" mbs -- fell dramatically in june, which is why the $'s may rally didn't last.

Posted by: bsetser | July 18, 2007 at 12:00 AM

I wanted to also say congratulations. I read about the promotion yesterday and I do also hope you continue to blog.

Posted by: Nathan | July 18, 2007 at 11:58 AM

are not the foriegners considered dumb money?

Posted by: dh | July 21, 2007 at 03:47 PM

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