J.P.Morgan Assess ’21 TIC Flow Data

After the release of December’s TIC flow data, J.P.Morgan note that “foreign investors bought $44.2bn long-term Treasuries over the month. Private institutions once again drove this flow, adding $53.3bn Treasuries, a step down from the previous month’s record pace but well above the 6-month average. Meanwhile official institutions sold $9.7bn, close to the average pace observed recently. Geographically, EM countries shed Treasuries over December, while the strongest buying came from the Cayman Islands - the country added $39.3bn in December, the largest monthly purchase since May 2018, likely representing short covering from the levered investor community, following $162bn of sales over the first 11 months of the year. Recall that the Cayman Islands has relatively low foreign exchange reserves and many hedge funds are domiciled there.”

• “With data now in hand for the full year, we reiterate the themes that we touched upon last month: when we strip out the Cayman islands, which shed Treasuries for much of the year, private demand firmed notably in 2021 compared with the pace of demand in 2020. We think valuations are driving this to an extent: the currency-hedged yield pickup for foreign-funded investors remains near their highest levels in more than 5 years. Looking ahead, we think foreign demand will strengthen in 2022, driven by attractive valuations and modest growth in FX reserve balances.”