20 June 2007

Droughts here and coming

Winter (Economic & Market) Watch » Droughts: "The Treasury International Capital Flows for April showed some major shifts in allocation. Net capital flows into the US were a whopping $111.8 billion for the month of April. That was in comparison to $30.1 for March. It is interesting to note here that foreign buys of US Treasuries were almost non-existent. They came in at a mere $376 million or a year low. That was in comparison to $30.51 billion for March and $18.57 billion for February. China actually decreased their treasury holdings to $414 billion from $419.8 billion last month.

Actually we can take this a step further using Fed custodial data and see that since April 5th, FCBs have liquidated $6.3 billion in Treasuries but have bought a stunning $58.3 billion in housing agencies. I have been arguing that it is this activity that is distorting markets and keeping yields or risk premiums artificially low on mortgages, right as credit conditions in housing are worsening."

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