MUFG dives deep into the recent Treasury International Capital (TIC) flow data, highlighting significant shifts in international capital flows, particularly concerning China's holdings and the surging demand for US equities.

Key Points:

1. Decline in China's US Treasury Bonds Holdings:

   • The June TIC data revealed China's holdings of US Treasury bonds declined by USD 12bn from May, bringing the total to USD 835bn — the lowest since June 2009.

2. Offset by Increase in US Agency Bonds:

   • While there was a significant drop in China's holdings of US Treasury bonds, it was somewhat counteracted by China's growing holdings in US Agency bonds. June data showed holdings of Agency debt at a record USD 270bn, the highest since 2011.

3. Limited Impact on the Dollar:

   • Despite the notable surge in demand, the dollar's position remained fairly stable. TIC flow data doesn't always dictate FX trends. In June, the Fed's Trade-Weighted Index (TWI) for advanced economies dropped slightly.

4. US Investors' Appetite for Foreign Equities:

   • June also witnessed US investors actively purchasing foreign equities, totaling up to USD 34bn — the second-largest outflow to foreign markets ever recorded. The only higher outflow was in March 2014.

5. Other Influencing Factors:

   • Strong risk appetite in the broader market can sometimes eclipse equity-specific flow effects.

Summary:

June's TIC data highlighted some interesting dynamics. While China reduced its holdings of US Treasury bonds to levels not seen since 2009, it increased its stake in US Agency bonds. Despite a surge in foreign demand for US equities, the dollar remained relatively unaffected, thanks in part to US investors' substantial investment in foreign equities and the broader market's strong risk appetite.