The recent $13 billion increase in the Federal Reserve's custody holdings, which show the amount of U.S. securities the Fed holds for foreign buyers, could be the beginning of a trend in which Asian demand for U.S. assets creeps higher. The jump is the biggest rise since January and could be an indication of low-profile Asian central bank buying if followed by another strong rise in next week's custody holdings report, according to Sean Callow, currency strategist at IDEAglobal.
Custody holdings for the week of Nov. 17 grew to $6.3 billion in Treasuries and $6.7 billion in agencies. "The latest custody holdings report certainly works against the gloomier scenario of Asian banks' demand for U.S. assets drying up," Callow noted.
The spike in agency custody holdings is partially due to Asian central banks shifting to agencies to try to pick up extra spread as they support their own currencies against the falling dollar, said Carl Moerbe, senior agency strategist at Morgan Keegan.
