As we settle in a day post the 25bp rate cut from the Federal Reserve, we find market rates higher and the curve steeper. Certainly Thursday’s jobless claims and Philadelphia Fed data (both firm for the economy) pushed in the direction of higher rates, but the tone from the US close in the hours after the Fed decision on Wednesday was also pushing in that direction. It was Asian and European trading that took the US Treasury yield back down from a possible attack on 4.1%. But that attack subsequently happened as the US trading day took control (especially post the data). So far, the 4% level has broadly held for the 10yr yield.
Latest Treasury International Capital (TIC) data show a moderate net inflow to US securities of some $2bn. The breakout shows selling of $25bn by China and $26bn by Japan, which has been thematic for both over previous years. There was also net selling of note out of Brazil, India and Belgium (custodian centre). The biggest net seller was Canada, at $57bn, reminiscent of the big sell trade done in April that was then reversed in May.
At the other end of the spectrum, the UK was a big buyer, at $41bn, as were many other European centres, the UAE and the likes of Hong Kong and S Korea. Excluding China and Japan, all other foreigners were net buyers to the tune of $54bn. In the past 12 months, average foreign buying is running at $61bn per month versus $134bn per month by domestics.
Overall, the July number as a whole, while not impressive, continues a theme of reasonable support for US securities. This helps provide underlying support seen for US Treasuries, but the data refer to flows through to end-July and so not timely enough to help explain more recent price action.