On Monday, the U.S. Department of the Treasury released its Treasury International Capital (TIC) data for January 2009. The TIC tracks the international purchases of U.S. securities like Treasury bills.
The news was not good.
Did China purchase more T-bills? Did Japan? Yes… China upped its holdings from $727.4 billion in December 2008 to $739.6 billion in January. Japan increased its holdings from $626 billion to $634.8 billion.
But overall, foreign purchases of U.S. debt securities were a net negative $148.9 billion.
That means foreign holders sold $148.9 billion of U.S. securities in January… A massive change from December’s net buying of $86.2 billion.
And that figure for China’s purchases is the smallest net purchase since May 2008.
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At first, this news was spun as good… CNNMoney reported, “Foreign purchases of U.S. debt rise.” But that only took long-term Treasuries into account, and it’s a bit skewed from the actual TIC numbers.
This is a big problem right now, as the U.S. is trying to raise about $2 trillion by selling Treasuries. This type of selling could mean a drop in U.S. dollar value, according to Michael Woolfolk, a currency strategist for MarketWatch.com.
Interestingly, analysts at RDG Economics told MarketWatch.com, “[International sales of Treasuries] may reflect hedge fund money that has been betting that the Fed would buy U.S. Treasuries – as it suggested in December it was considering.”
And surprise, surprise…
On Wednesday, the Federal Reserve announced it would buy $300 billion in long-term U.S. Treasury bonds over the next six months
Now, let’s do the math.
The TIC said net foreign purchases of long-term securities were negative $43 billion. The Fed is going to buy $50 billion in long-term T-bills a month for the next six months.
That only gets us to $7 billion, folks. December’s TIC numbers showed an increase of $34.7 billion in long-term Treasuries. Still a drop of 79.8%… And if you think about it, we’re buying our own debt, and with yields so low, it’s about a wash.
We’re only artificially stoking demand, and keeping the net buyers of U.S. debt – read China and Japan – happy.
So that maybe they won’t unload all those T-bills they already own.
Adam Lass, editor of WaveStrength Options Weekly, says this news should have been a headliner… Not that AIG bonus scandal. “Seems to me that right about the same moment that we are trying to flog $2 trillion in shiny new ‘Obama-Bonds’ on the open market, most everyone else is trying to unload nasty old used U.S. notes onto that same market.”
“The upshot?” he asks. “That light at the end of the tunnel that the cheerleaders were touting? That’s the 4:19 express out of Galveston, my friends, and the Obama recovery program is sitting square in the middle of the track.”
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