Any idea what it means when they say “Off Balance Sheet” holding of 1.2 trillion dollars worth of securities for the Federal Treasury?
Memo (off-balance-sheet items):
Marketable securities held in custody for foreign
official and international accounts(2,7) 2,004,821 - 1,605 + 337,613 1,989,780
U.S. Treasury 1,243,962 - 3,857 + 106,098 1,224,038
Federal agency 760,859 + 2,252 + 231,515 765,742
Securities lent to dealers 4,701 + 1,214 + 2,223 11,118
I believe that the reference is to the Federal Reserve providing custodial services. While those are indeed Treasury securities, I believe that the owners are foreign, and are largely governments, although according to section C, question 10a from the Treasury FAQ #2 it appears that other "international organizations" can also use these custodial services:
C. Questions on foreign holdings of U.S. Treasury Securities and Foreign Official holdings:
10 a. How do the TIC data on Major Foreign Holders of U.S. Treasury Securities compare with FRBNY custody holdings?
TIC users often attempt to reconcile holdings of Treasury securities by foreign official institutions as reported in the memo lines of the TIC table "Major Foreign Holders of U.S. Treasury Securities" (www.treas.gov/tic/mfh.txt) with the memo lines of the Federal Reserve Statistical Release H.4.1 "Factors Affecting Reserve Balances" (www.federalreserve.gov/releases/h41/), which lists Treasury securities held in custody by the Federal Reserve System, primarily for foreign official institutions at the Federal Reserve Bank of New York (FRBNY). This note outlines the comparability of these two series and explains why both positions and monthly changes in the two series may differ. Users are also advised to read the companion note "Methodology for Estimating Holdings of Treasury Securities in the table “Major Foreign Holders of U.S. Treasury Securities” (www.treas.gov/tic/method-mfh.html) to understand how the TIC positions in that table are constructed.
- Differences in coverage: The most important reason for differences between holdings reported in the TIC and the FRBNY custody accounts is a difference in coverage. First, not all foreign official holdings of Treasury securities as reported by the TIC system are held at FRBNY. In particular, Treasury securities held by private custodians on the behalf of foreign official institutions are included in the TIC but not in the FRBNY figures. In this sense, the coverage of the TIC system is broader than that of the FRBNY custody holdings. Second, the custody holdings at FRBNY include securities held for some international organizations as well as for foreign official institutions. In this sense, the coverage of the FRBNY custody holdings is broader than the foreign official designation in the TIC system.
- Differences in timing: The TIC system records holdings and transactions as of the end of the last business day of each calendar month whereas FRBNY custody holdings are reported in the H.4.1. as of the week ending Wednesday. This difference in timing can lead to slight differences in both positions and transactions over a month or a quarter. TIC data are released monthly with approximately a 1½ month lag. The H.4.1. release is weekly.
- Differences in valuation: The custody holdings at FRBNY are a tabulation of securities held at face value. TIC Major Foreign Holders data are a hybrid of market and face values. As described in the companion note, the major foreign holders table includes holdings of Treasury bonds at market value as of the most recent liabilities survey, which are then projected forward using more recent monthly transactions, also at market value. Treasury bills and certificates are included at face value. These differences in valuation can also make slight differences in both holdings and in changes in holdings as reported by the two systems.
- A fourth source of discrepancy arises because the TIC system of monthly net purchases or sales of long-term securities is specifically designed to capture only U.S. cross-border transactions. If a foreign official institution acquires a Treasury security from a private foreign entity on a foreign securities exchange and then has the security held in custody at FRBNY, reported custody holdings will increase. However, there will not be a corresponding TIC-reported foreign official purchase because this is not a U.S. cross-border transaction: it is a foreign-to-foreign transaction. Note that when the Treasury security first was acquired by the private foreigner, there would have been a U.S. cross-border transaction reportable in the TIC system but it would not be recorded as a foreign official purchase, nor would it necessarily be recorded in the same calendar month or against the same country as the movement into custody at FRBNY.
- Foreign official institutions may also transfer Treasury securities into or out of the custody of FRBNY from other U.S custodians. Such a shift would show up as an increase or decrease in custody holdings at FRBNY, but (appropriately) would not show up as a foreign official transaction in the TIC data because there is no U.S. cross-border transaction. Thus, holdings of Treasury securities as reported on the Major Foreign Holders table would remain unchanged while holdings reported by FRBNY would rise or fall.
Comparison of estimates of Foreign Official Holdings of U.S. Treasury Securities (Billions of Dollars)
Major Foreign Holders Table
H.4.1. Release
End-June 2005
1277.7
1084.9
End-September 2005
1272.5
1087.5
End-December 2005
1293.0
1100.6
Change: Q3 2005
-5.2
2.6
Change: Q4 2005
20.5
13.1
Data as of May 15, 2006.