CreditSights: Demand Picks Up
The Treasury Department released the latest data on foreign demand for U.S. dollar-denominated assets earlier this month. With regard to the corporate sector, the numbers showed a reassuring rebound in demand with net purchases coming in at $21.27 billion. That level is well above the dismal $13 billion of purchases that were recorded for January and is only just shy of the 2003 monthly average that resulted in last year's record level of demand. The fact that such a substantial jump in demand took place when corporate issuance volumes, spreads and indeed the U.S./Euro exchange rate were all comparatively stable between the two months helps to paint January's numbers as an aberration and alleviates some concern about erosion of demand in the sector.
It is interesting to analyze the regional composition of February's data as it highlights that the weakness in U.K. demand that was so apparent in January has continued in the following month. In 2003, the U.K. accounted for 40% of total demand, the most substantial portion attributed to any single region. Further, that share was at the low end of the range established in recent years. Back in 2000, 60% of foreign purchases could be attributed to the U.K. But in January, U.K. investors bought just $1.24 billion making their share just 10% of the total. And even though U.K. demand was stronger in the latest month, rising to $2.9 billion, it still only accounted for 14% of aggregate totals.
Europe accounted for a greater share of the increase in demand as purchases from that region picked up by $2.1 billion month-over-month to $5.96 billion in February. This represented 28% of the total, up from the 22% share that the region managed in full-year 2003. An equally enthusiastic jump was seen from the Caribbean region, which is tracked for its insight into hedge fund purchases given the large number of hedge funds registered there. Total Caribbean purchases were $5.5 billion in March, a monthly increase of $2.67 billion. Purchases from the Cayman Islands, the center of hedge fund activity, comprised only $3.85 billion of the volume purchased but they accounted for nearly 100% of the month-over-month increase, indicating that hedge funds, which were an important source of demand in 2003, have maintained their presence in the sector. Asian demand (not including Japan) also rebounded during the month, rising by $1.2 billion to $1.7 billion. Japan's purchases were stronger at $3.8 billion, but showed little increase over January's level. Overall, Japanese and Asian demand remains far less important to the corporate sector than it is to other U.S. asset classes. In 2003 Japan accounted for just 4% of Asian purchases and the rest of the Asian region equaled just 7% of total corporate demand.
Analysis by CreditSights, Inc., an independent online credit research platform. Call (212) 340-3888 or visit www.CreditSights.com for more information.
