Markets

U.S. ECONOMICS: March Treasury Flows Illustrate Risk Off Environment - 10-Year 2.503%

The March U.S. net long-term security purchases report (TICS) revealed a $126 billion March outflow thanks to a $118 billion outflow in net bank liabilities. Domestic net investment revealed a $9 billion inflow after a $91 billion surge in February. Equities saw outflows of $14.4 billion, and $9.1 billion left Agencies. Those were partly offset by a $26 billion inflow in Treasuries. There was a large $116 billion net private outflow alongside a small $11 billion outflow from official accounts.

A recent round of strength continues the general uptrend seen since early 2008. Outflows were seen in three of the last five months including the $91 billion February increase that was the largest since January of 2011.

Erratic thawing in risk aversion has been seen since the Q4-2008 and Q1-2009 peaks in financial market stress. While the last year revealed a "risk-on" pattern, a risk-off shift reemerged in 2H2013 despite seeing strength in October. 2014 revealed a return to risky tendencies before seeing risk-averse trends in March.

The rebound in investor sentiment over the last couple of years has been most evident in the net inflow into equities. However, March revealed a $14 billion outflow, extending $0.9 billion in February following a $5.8 billion outflow in January.

Treasury market purchases have been high due to the massive shift in aggregate dollar-denominated borrowing toward Treasuries given a big budget deficit, though this flow has been capped by the Fed's QE programs. The $25.9 billion inflow in March extends the largest inflow since August of 2010. Other recent inflows have fallen well short of the notable January 2012 rebound from the December outflow, which marked the largest inflow since September of 2011. Treasuries revealed a record inflow of $118 billion in August 2010, which was part of a string of two full years of sizeable inflows.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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