May 16, 2005

Norway Sells Half its U.S. Treasury Bonds

From Reuters:
A surprisingly small flow of foreign money to the United States in March was due mainly to a halving of oil-rich Norway's U.S. Treasury bond holdings, raising questions about whether overseas governments are cutting huge holdings of U.S. assets.

A U.S. Treasury report on Monday showed the net flow of foreign investment to U.S. securities at $45.7 billion in March -- more than $20 billion below expectations and less than needed to cover the $55 billion U.S. trade deficit that month.

Foreign official institutions, consisting mainly of foreign central banks, were net sellers to the tune of $14.98 billion.

Close examination of the data shows these sales were dominated by Norway's more than halving its holdings of Treasury bonds to $16.9 billion from $33.8 billion.

Analysts said Norway's holdings are most likely those of the $160 billion Government Petroleum Fund, a fund of foreign stocks and bonds set up in 1996 aimed at saving oil and gas revenues for the future, when energy resources run out.
Norway's Treasuries holdings rose by more than $20 billion in the second half of 2004 to $35.1 billion in January, said Goldman Sachs economist Thomas Stolper. He added that March looked consistent with a very active investment stance.

This was an interesting take on some pretty widely covered news. As Brad Setser says, "...Norway is not likely to sell $17 billion of Treasuries every month." Even so I am surprised the euro didn't get a little more mojo back against the dollar.

Today's news continues the trend of taking some pretty surpising data in stride. In the last two weeks we have gotten over strong employment data (too construction heavy), a shrinking trade deficit (it was Chinese New Year), and strong retail sales (screwed up by Easter). My answer to all this is that the market is just not focused on the data. It probably doesn't help that there has been a pretty mixed picture.

I kind of feel the path of least resistance for the markets is higher (lower for UST bonds) as lots of people seem to be looking at long-term problems to drive current prices. This is most noticable in housing but so far there is little sign that market can't stay strong through the fall.

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