What is going on with Canadian holdings of US Treasuries?

Regular commenter Kosta points us to this release of major foreign holders of US Treasuries, noting that Canadian holdings increased by a factor of six between December 2008 and December 2009 (from USD 7.8b to USD 48.3). That may be from a low base, but even if you scale the numbers by GDP - as Kosta very kindly did for us - it's still remarkable:

Country	Increase in holdings: Billions	Increase in holdings: Per cent of 2009 GDP
Japan	142.8	2.8%
Hong Kong + China	103.2	2.1%
UK	169.4	7.7%
Canada	40.5	3.1%
Brazil	33.6	2.3%
France	20.7	0.8%
Switzerland	13.7	2.8%
South Korea	7.9	4.0%
Egypt	7.6	4.0%
Australia	4.8	0.5%

The UK numbers almost certainly include transactions made for third parties.

But what is going on with the Canadian numbers? Does anyone know what happened?

Comments

[Constantine]

Aren't they just trying to keep the C$ from rising?

[ClaudeB]

Maybe the US is out of bananas. Does anyone know if greenback-filled doughnuts taste good?

[Stephen Gordon]

Nah. Krispy Kreams are terrible.

Constantine: I don't recall hearing that the Bank of Canada actually intervened in the forex markets. And that would have been news; it hasn't done so since 1998, if memory serves. And I just checked the international reserves numbers: holdings of USD have remained roughly constant.

[Nick Rowe]

Aging Canadian boomers wanting safe assets for their retirement?

[Stephen Gordon]

Maybe not all that safe - the USD depreciated by 17% against the CAD over that period.

[Geoff NoNick]

I think it may be currency speculation, though. If I had to guess, I would say that as the the CAD saw unusual highs in 2009, some speculators (possibly large mutual funds that can't play derivatives or FOREX directly?) bought US T-bills in anticipation of a fall in the CAD/return of the USD to its relatively strong position.

[asp]

Harper. Anything US is good.

[Kosta]

Stephen,

Thanks for posting the table. The original data, from the U.S. Treasury Department, can be found here: http://www.treas.gov/tic/mfh.txt

I agree that it is unlikely that the Bank of Canada intervened in the forex markets without someone hearing about it. Also you're absolutely right about Canadian foreign reserves being mostly constant over 2009, with the IMF publishing the December 2008 and December 2009 foreign currency reserves (in convertible foreign currencies) as USD41.537 billion and USD42.602 billion respectively (data available here: http://www.imf.org/external/np/sta/ir/can/eng/hstcan.pdf). But the U.S. Treasury Department is still reporting that Canada increased its holdings of U.S. Treasuries by USD40 billion last year, so something doesn't fit.

I don't understand the contradiction -- how could Canada have increased its holdings of U.S. Treasuries by USD40 billion without changing the size of its reserves (especially as those reserves are only USD40 billion in size)?

Maybe Canada changed the composition of its reserves so they are now composed entirely of U.S. Treasuries? Unlikely I think.

Or maybe Canada is classifying these U.S. Treasuries as something else than foreign reserves? I'm just guessing here, but I'm at a loss.

[Kosta]

Oh, and some charts comparing each country's holdings of U.S. Treasuries and their changes over the last year can be found at EconomPic here :http://econompicdata.blogspot.com/2010/02/china-sells-treasuries-or-did-they.html

[RSJ]

TIC data shows the value of treasuries purchased by agents physically located in Canada. Those purchases could have been on the behalf of anyone, and did not necessarily end up in Canada. Neither is this a net flow of dollar denominated assets. If a dealer in Canada shifts their portfolio to be a seller of MBS and buyer of treasuries, then the TIC data will only show the change in the long position, so this is not a measure of cross border capital flows.

Btw, as the U.S. CB buys has been a net buyer of MBS and other non treasury securities, you would expect the non CB sector to do such a portfolio shift, so one explanation was the Canadian pension funds and the like were previously heavily invested in agencies and the like, and some of this is now a treasury position.

[Kosta]

RSJ: So TIC includes private holdings. Of course! Now the data makes sense. Thanks!

[Geoff NoNick]

Potential answer: http://www.theglobeandmail.com/report-on-business/economy/is-china-secretly-buying-us-debt/article1472642/

[JP Koning]

I'll bet my shirt that the purchases of US Treasuries are by Canadian banks. The CMHC (through the CHT) and IMPP have bought over $100 billion worth of Canadian mortgage backed securities from chartered banks since October 2008.

The banks, flush with cash, have been replacing these assets with Canadian government bonds, and a fair chunk of US bonds too. Basically, there's been a massive asset switch, and that shows up in the US data you spotted.

[Stephen Gordon]

Would that show up in the Bank of Canada's data for chartered bank assets (page S17 of this 176-page pdf)? Because the number for net foreign currency assets went from 11b to -7b. (Or am I interpreting it wrong?)

[JP Koning]

I'd guess that net foreign currency assets in the BoC data is foreign assets less foreign liabilities, so any change in the net number doesn't explain what happened to assets only. Also, assets is a broad category that would include not just US Treasuries but all sorts of securities and loans. I don't know of any government data that breaks all this down.

[Stephen Gordon]

Quite right - Canadians (including Canadian banks) may have simply traded equities and corporate bonds for Treasuries. Just like everyone else, come to that.