re: non-distorted yields and prices, i would note that there are two issues — the price (yield) of the bond, and the price of the currency. right now the $ is too expensive (v. say the RMB) to be attractive at pretty much any reasonable yield, in my view. obviously it differs for Europe — the euro already has appreciated, the rmb hasn’t.

I also don’t think it is just third party mandates. there are also central bank purchases through intermediaries/ custodians — goldman ny sells to barclays london who sells to the PBoC … and then the PBoC shifts custodial holdings of that bond to the ny fed, so the increase in FRBNY custodial holdings is higher than the recorded official purchases. For now, i think this is the bigger distortion — and it (unlike the distortions created by outside managers) gets corrected when the survey data comes out. I also think it is likely — given the huge gulf between may reserve growth and the recorded inflows, even if you add all London treasury purchases to the official total, that there was a major buildup of offshore $ deposits in the int. banking system.

either that or there was a lot of diversification — and may was a pretty good month for the $ as months go, so that seems strange — the diversification would have needed to be overwhelmed by private flows (the equity inflows you mentioned)

The rising US economic/debt bond issue can’t be forgotten or ignored. I believe that the recent constant devaluation of the US dollar will invite major bond purchasers to move over to other currencies such as the Euro, putting further pressure on the US currency devaluation trend… Another possible problem is that the emergence of China and India as large and relevant commodities purchasers might encourage commodity and energy producing countries to move over to the Euro as a more stable denomination in which to price their goods. Imagine the uncomfortable effect on the US economy of constantly rising commodities prices due to the devaluation of their dollar currency. Also the US multinational corporations seem to be already factoring/feeding into their prices the US dolar devalution something that may highten inflationary fears in that country.

One economic columnist in an US major newspaper cited some analysts’ idea that currently the major Chinese export today is “deflation”, not industrial/manufactured goods, as we all might imagine… She also pointed out and that any real price hike of their yuan or any import restriction on Chinese goods may easily create substantial inflationary pressures in any major Western economy. Maybe that’s why the US government can’t really effectively pressure the Chinese Central Bank into significantly raising the value of their currency against the US$.

i don’t think China is actively trying to disguise its tracks (unlike some in the middle east) so much as buying its dollar debt in the world’s current financial capital, one that happens to be open for at least some time during the Chinese business day. if china wanted to hide its tracks, it would need to take some lessons from some folks in the middle east about how to stay out of the survey data … not just stay out of the tic data.

that said, a lot of people do use the tic data/ the reported holdings of us treasuries on the us treasury web page as a guide for official demand. you sort of have to be in the know to know that the tic data misses most Chinese purchases. so there is some effective masking.

i probably downplayed the surge in foreign purchases of corp. bonds in the May data. some of that may be coming from banks in europe flush with dollar deposits from Central banks — or perhaps more central banks are shifting not just from treasuries to agencies but also from both treasuries and agencies to corporate bonds.

if so, they seem to have bought in at the peak …

the june data release should be interesting. i would expect a fall in long-term treasury bond purchases (both official and private), a rise in bill purchases, and a general fall-off in demand for US corp. bonds.

overall reserve growth was a lot lower in june than in may, so some of the fall off in demand for us debt is real. but there also may be some signs of big shifts in the kind of assets that CBs and SWFs are buying.

“…The reserve managers’ responses made it clear that the world’s biggest pool of cash will be invested more aggressively than in the past. That means they will buy fewer U.S. government securities… What’s more, the responses illustrate that regardless of their financial muscle, central banks are no better than the private sector when it comes to predicting market moves…” http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aN6a0pCp8Wv4

London banker — good point and thanks for the comment. I suspect a similar logic also applies to Russia’s agency holdings — Russia certainly seems to hold both a declining share of its reserves in $ and a declining share of its dollars “onshore” in the US. I have been meaning to look more into luxembourg’s holdings of us assets for a while, and your comment reinforced that desire — i had assumed the large luxembourg holdings in the survey data were H. funds and tax-evading Germans, but I may have been way off.

Two things.

One. No question that the Arabs are worried about potential asset freezes. They’ve good reason to be concerned. The Trading With The Enemy Act is still alive and well. Two. Is it possible that part of Britain’s TIC transactions are by Chinese banks operating out of London on behalf of the PBOC? And what about swaps? Where are they in the data? Or, aren’t they in the data?

thoughts of China, Russia and Germany alone, the U.S. isn’t the only nation which may be accused, historically, now and going forward, of being a bit heavy handed on the asset freezes and forfeitures – especially when there is so much room for misunderstandings about the ‘lawful’ allocation of wealth within and between nations, firms, owner/operators and citizens.

Irresponsible Federal Reserve “cheap money” monetary policy
http://www.sirchartsalot.com/article.php?id=62

It’s not surprising, because since Bernanke took over the helm of the Federal Reserve, the growth rate of the US M3 money supply has expanded rapidly to a 13% annualized clip, just shy of a 30-year high, and up from 8% in March 2006. Much like the ECB, the Fed is expanding the M3 money supply to immunize the US economy and stock market from sharply higher prices of crude oil.

The rapid expansion of the US money supply has sent the US dollar to its lowest level in 26-years against the British pound, an 18-year low against the Australian dollar, a 30-year low against the Canadian dollar, and an all-time low against the Euro. So oil exporters are quick to dump the US dollar and convert into appreciating currencies after initially accepting payment in the greenback.

A weaker US dollar, double-digit growth of the money supply, and sharply higher oil and food prices is a prescription for higher inflation. Most folks would probably agree with that. According to the IMF, food prices are 23% higher around the globe than 18-months ago, largely due to stronger demand for agricultural commodities to make ethanol and other bio-fuel substitutes for crude oil.

Of course, Bernanke’s sleight of hand is backed up heavily doctored inflation statistics, conjured up by government apparatchniks. The mainstream media relays the inflation propaganda to the public, with a stamp of approval from Wall Street economists. But with a hyper inflating stock market in the background, savers in the US bond markets are the big losers from Bernanke’s money printing operations.

Arab oil exporters are paid in heavily inflated US dollars, which are losing their purchasing power against the Euro and British pound. Arab oil kingdoms are keeping a tight lid on the oil supply to buoy prices, to offset the Fed’s devaluation of the US currency. It’s a vicious cycle that doesn’t end, until Helicopter Ben and his reckless cohorts in Asia and Europe, tighten up on the money supply.