China sold $66.4 bln of US Treasury bills, notes, and bonds - BBH

Research Team at BBH suggests that the talking point today is yesterday's TIC data as the press is highlighting the fact that China sold $66.4 bln of US Treasury bills, notes, and bonds. 

Key Quotes

“It is the sixth consecutive drawdown and the largest since the end of 2011.  The US Treasury reckons China still has $1.05 trillion of its paper.  Japan reduced its Treasury holdings for the fourth consecutive month.  The $22.3 bln liquidation brings the holdings to $1.11 trillion.  China and Japan together account for the bulk of the reduced foreign holdings, which now stands at $5.94 trillion, the lowest since 2014.”

“We would add two points to the discussion.  First, there is often a lot of noise around bills.  This may be especially true as the asset managers prepared for a Fed hike.  The signal is the long-term flows.  These rose $30.8 bln.  The private sector is absorbing what official sales that are taking place.  The pace is also fairly steady.  The monthly average inflow in 2014 was almost $23 bln and $26.5 bln in 2015.  The average for the first eleven months of 2016 was $24.6 bln.”

“Second, we note that the Federal Reserve's custody holdings for foreign central banks trended lower through the middle of November to about $3.111 trln.  It has risen by more than $70 bln.  This data series is not directly comparable to the TIC data.  The Fed's custody data show practically no change from the end of October to the end of November.  Our point is that the private sector appears to buy from official sales and that those official sales do not appear too worrisome, and may have actually increased more recently.”