Foreigners purchases of US debt: Is this finally the end?

[grapejelly]

Did Doug Noland hit the nail on the head?

And when it comes to Credit Bubble analysis, the Rest of World (ROW) page in the Fed’s Z.1 “Flow of Funds” report is actually the one I contemplated the most (and with the greatest unease) this week. ROW increased holdings of U.S. Financial Assets by $1.573 TN last year, [bold face added] or 11.4%. With the Bursting of the Credit Bubble and the resulting impairment of U.S. securities, such growth has become unsustainable. ROW holdings of U.S. Financial Assets were up an astounding $7.222 TN, or 88%, in just four years. ROW more than doubled holdings of Agency/GSE MBS ($1.379 TN) and almost doubled Corporate Bonds/ABS ($2.583 TN) position since the beginning of 2004. Security Repo holdings grew from $460bn to $1.100 TN. U.S. Equities almost doubled (94%) to $2.806 TN. Total Credit Market Instrument positions were up 79% over four years to $6.855 TN.

During the fourth quarter alone, ROW holdings of U.S. Credit Market Instruments expanded at a SAAR $1.045 TN. Interestingly – and a much less than “bullish” dynamic - the composition of assets acquired changed markedly. Treasury and Agency purchases accounted for 62% of purchases, up from about 15% during Q3. And with the international banking community now in full retreat away from U.S. structured finance and risk assets, the ROW’s stalwart increase in U.S. “Misc. Assets” and Corporate Bonds is surely in serious jeopardy.



Today, with Treasury yields having collapsed, Agency securities having lost their luster, and even investment grade corporates heavily tarnished, it is not at all clear as to which U.S. financial assets today hold sufficient appeal to our foreign Creditors. It is anything but obvious as to how we will now sustain a smooth “recycling” of our massive Current Account Deficits. And I certainly don’t believe it is any coincidence that the recent alarming widening in agency debt and MBS risk premiums has occurred concurrently with the acceleration in dollar weakness.

This has been predicted before...but surely it is happening? With Agency debt spreads at never-before-seen levels?

[Mega]

Re: Foreigners purchases of US debt: Is this finally the end?

Yes, but i think its worse than just that.

Wall St had a rep, ok it crapped on people in the tec boom but by enlarge you say the banks were trustworty. Just think, if you where a guy working in a bank in say Spain or Germany and you got your fingers burnt badly by this "AAA=CRAP" thing and you only just hung on to your job by the skin of your teeth..........would you ever trust them again?

Me?...........am just an engineer from Liverpool, but i KNOW not to buy so much as a postage stamp from ANY of them.

Besides WHY go to Wall st?...........Most money will be invested in Asia.........so why not go to see honest "local" banks?
Mike

[c1ue]

Re: Foreigners purchases of US debt: Is this finally the end?

I haven't looked at the composition recently, but I do recall there were some very interesting purchases of US treasuries? by "an unnamed Caribbean bank" - at least 1 order of magnitude (10x) more than anything previously seen.

Thus the real question isn't the overall ROW purchase of US securities, it is what the US trading partners are doing.

And that doesn't seem to be buying US treasuries or MBS anymore.

[jk]

Re: Foreigners purchases of US debt: Is this finally the end?

somebody's been buying treasuries heavily - yields have been dropping sharply, at least at the short end, until yesterday's tslf announcement.