Attention turning back to TIC flows? - BBH

Analysts at Brown Brothers Harriman explained that because of the wide interest rate differentials (and swap rates), it is expensive to hedge dollar-denominated investments for Japanese and other investors.  

Key Quotes:

"Indeed, the TIC (Treasury International Capital) report showed that China and Hong Kong sold $28 bln and $11 bln of US Treasuries, respectively, in June.  Japanese investors sold $13 bln.

However, what is the most striking element in the TIC data was that all of the Treasury selling came from officials (central banks), not the private sector.  Specifically, the data showed that $32.9 bln of Treasury bonds and notes were sold in June, and officials sold $33.5 bln.  The private sector bought $2.35 bln of US Treasury bonds and notes.  The Cayman Islands, where many hedge funds are based, for tax and regulatory arbitrage purposes, bought $27.3 bln of Treasury bonds and notes in June.  

Interestingly, the amount of Treasuries that the Fed holds as a custodian for foreign officials increased slightly in June.  They stood at $2.904 trln at the end of May and $2.912 trln at the end of June.  At the end of July, the Treasuries in the Fed's custodian account stood at $2.898 trln and $2.877 trln as of August 17."