This is the Amazon+Mighty Miss. of money flows.
From FT Alphaville:
Eurodollars, China, TIC data + mysteries
Bloomberg went to town this week on news that hedge funds may be piling into USTs to the total tune of $1.27tn in lieu of foreign central banks and finance ministries who for the first time since 2000 have — on an annual basis — been holding off from making further investments.
On March 15, US Treasury International Capital system data confirmed that foreigners sold $50.4bn in Treasuries on a net basis in January. But! foreign central bank holdings of US Treasuries actually grew to $6.183tn in January.
But there are discrepancies to consider.
In a blog on Tuesday post Jeffrey Snider of Alhambra Investment Partners draws attention to indicators which he feels point to a period of eurodollar decay.
Eurodollars, as we’ve noted before, are financespeak for dollars which circulate abroad according to their own fundamentals, supposedly outside of the control of the core Federal Reserve banking system. Some say such dollars equate to US liabilities held and circulated by foreign banks and institutions, others say they’re a proxy for banking standards which underpin and formalise international trading relationships. Either way, little is officially written, known or even talked about with respect to eurodollars. Snider is unusual in being one of a few market commentators following this sector of the market closely.
But as Snider notes, with respect to the composition of the latest TIC data, something feels unusual about the numbers:
…the private holdings of US$ assets have been rising in the past few months despite the return of liquidations. However, reported bank liabilities (“dollars”) have not, at least on a cumulative basis (there are quarterly flows and window dressings to account in this estimation; by and large, however, banks are continuously shrinking their reported “dollar” liabilities dating back, unsurprisingly, to the middle of 2014).So, despite the increase in private holdings of US$ assets the dollars paid in return for those assets are not making their way into the US banking system. Meanwhile, says Snider, it’s becoming increasingly hard to pinpoint the geographic location of the net UST selling, something he proposes — based on this news from the IMF — could be down to the increased use of currency forwards in official sector interventions (and particularly by the Chinese central bank).....MORE
