The Twists are old Asia hands, and they remind me that, for whatever reason, Western calendar year-end is a big deal for the host cultures of the foreign central banks that have been buying America’s debt over the last few years. Their increasing appetite for single-malt has become legendary around here — maybe they’ve started celebrating Hogmanay? Anyway, I had a look at our data-set, and indeed the first couple of weeks in a year don’t usually see big moves (it’s not universal, though, early 2006 was pretty lively). This year’s early days aren’t just quiet, though, they’re just about dead.
Big hat-tip to twist and Freedom’s Phoenix for this dig [1] that details reasons for a waning appetite for US Treasury Debt by China’s central bank. Doom will be watching very closely to see which way the numbers break in a week when the cenbankers get back to their computer screens and declare a real trend.
UPDATE: Bloomberg tries to fluff up [5] the teeny agencies holdings increase. Heh, guys, if last week’s $4.475 billion selloff was "small," what does that make your rounded up $700 million buy?
This week’s Reuters report [2] picks out the happy-stat that this is the first week in 14 that foreign central banks actually had a net buy of Agency Debt. They gloss over the fact that this positive number was an insignificant $0.65 billion, hardly in the noise compared to recent moves. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[3] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[4]
The central banks added only $0.52 billion of Treasury Debt in the week, a number even smaller than that for Agency Debt and so tiny compared to recent moves it hardly shows up on the graph. These combine to give a paltry $1.17 billion addition to cenbank obligations. Basically, this was a week for going sideways.
The raw-numbers graph, of course, did about nothing. Clearly a dramatic change from recent trends, but we’ll have to wait and see what is happening now that Asian bankers have gotten back to their desks following the holidays.
The downward trend in twist’s ratios graphs stopped dead, of course.
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Notes and References
[1]: "U.S. debt is losing its appeal in China", by Keith Bradsher, Reuters / IHT, January 8, 2009.
"All the key drivers of China’s Treasury purchases are disappearing," said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland. "There’s a waning appetite for dollars and a waning appetite for Treasuries. And that complicates the outlook for interest rates."
Fitch Ratings, the credit rating agency, forecasts that China’s foreign reserves will increase by $177 billion this year – a large number, but down sharply from an estimated $415 billion last year.
[2]: "Foreign central bank agency holdings rise in week", by Burton Frierson, Reuters, January 8, 2009.
[3]: "H.4.1 Factors Affecting Reserve Balances", Federal Reserve Statistical Release (weekly), Federal Reserve Bank of New York.
[4]: The updated data set as a Comma Separated Value (CSV) file is here.
[5]: "Overseas investors buy Fannie, Freddie debt", by Deborah Levine, Bloomberg, January 9, 2009.
… Agency debt held by the Fed in custody for foreign investors increased by $700 million, according to data compiled by the Fed released late Thursday. That’s the first increase, and followed last week’s small decrease, since early October, when custody holdings went into freefall, said Lou Crandall, chief economist at Wrightson ICAP …
